<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[X]  Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 2001
or
[ ]  Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from _________ to _________

Commission file number 0-11951

                                   JSCE, Inc.
             (Exact name of registrant as specified in its charter)

          Delaware                                         37-1337160
(State of incorporation or organization)        (I.R.S. Employer Identification)

     150 North Michigan Avenue
     Chicago, IL                                              60601
(Address of principal executive offices)                   (Zip Code)

                  Registrant's Telephone Number: (312) 346-6600

                                  -------------

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ______
    --
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

As of February 28, 2002, none of the registrant's voting stock was held by
non-affiliates.

The number of shares outstanding of the registrant's common stock as of
February 28, 2002: 1,000

DOCUMENTS INCORPORATED BY REFERENCE:

                                               Part of Form 10-K Into Which
Document                                        Document is Incorporated
-------                                         ------------------------
                                                         None

The registrant meets the conditions set forth in General Instruction (I) (1)
(a) and (b) of Form 10-K and is therefore filing this form with the reduced
disclosure format permitted thereby.

<PAGE>




                                   JSCE, INC.
                           Annual Report on Form 10-K
                                December 31, 2001

                                TABLE OF CONTENTS

PART I                                                                  Page No.
Item 1.  Business..............................................................2
Item 2.  Properties............................................................7
Item 3.  Legal Proceedings.....................................................7

PART II
Item 5.  Market for Registrant's Common Equity and Related Stockholder
         Matters...............................................................9
Item 6.  Selected Financial Data..............................................10
Item 7.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations............................................11
Item 7a. Quantitative and Qualitative Disclosures About Market
          Risk................................................................20
Item 8.  Financial Statements and Supplementary Data..........................21
Item 9.  Changes in and Disagreements With Accountants on Accounting and
         Financial Disclosure.................................................48

PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......48

FORWARD-LOOKING STATEMENTS
Except for the historical information contained in this Annual Report on Form
10-K, certain matters discussed herein, including (without limitation) under
Part 1, Item 1, "Business - Environmental Compliance", under Part I, Item 3,
"Legal Proceedings" and under Part II, Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations", contain
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. Although we believe that, in making any such
statements, our expectations are based on reasonable assumptions, any such
statements may be influenced by factors that could cause actual outcomes and
results to be materially different from those projected. When used in this
document, the words "anticipates," "believes," "expects," "intends," and
similar expressions, as they relate to JSCE, Inc. or its management, are
intended to identify such forward-looking statements. These forward-looking
statements are subject to numerous risks and uncertainties. There are important
factors that could cause actual results to differ materially from those in
forward-looking statements, certain of which are beyond our control. These
factors, risks and uncertainties include the following:

..    the impact of general economic conditions in North America where we
     currently do business;
..    general industry conditions, including competition and product and raw
     material prices;
..    fluctuations in interest rates, exchange rates and currency values;
..    unanticipated capital expenditure requirements;
..    legislative or regulatory requirements, particularly concerning
..    environmental matters;
..    access to capital markets;
..    fluctuations in energy prices; and
..    obtaining required consents or waivers of lenders in the event we are
     unable to satisfy covenants in our debt instruments.

Our actual results, performance or achievement could differ materially from
those expressed in, or implied by these forward-looking statements, and
accordingly, we can give no assurances that any of the events anticipated by
the forward-looking statements will transpire or occur, or if any of them do
so, what impact they will have on our results of operations or financial
condition. We expressly decline any obligation to publicly revise any
forward-looking statements that have been made to reflect the occurrence of
events after the date hereof.

                                        1

<PAGE>


                                     PART I

ITEM 1. BUSINESS
        --------

Unless the context otherwise requires, "we", "us", "our" or JSCE refers to the
business of JSCE, Inc. and its subsidiaries.

GENERAL
-------

JSCE, Inc., a Delaware corporation, is an integrated producer of
containerboard, corrugated containers and other packaging products. We conduct
all of our business operations through our wholly-owned subsidiary Jefferson
Smurfit Corporation (U.S.) (Jefferson Smurfit (U.S.) or JSC(U.S.)), a Delaware
corporation. Jefferson Smurfit (U.S.) has extensive operations throughout the
United States. For the year ended December 31, 2001, our net sales were $3,466
million and net income was $108 million.

We are a wholly-owned subsidiary of Smurfit-Stone Container Corporation, a
Delaware corporation. Smurfit-Stone is a holding company with no business
operations of its own. Smurfit-Stone conducts its business operations through
two wholly-owned subsidiaries: JSCE and Stone Container Corporation, a Delaware
corporation.

PRODUCTS
--------

We report our results of operations in four industry segments, three of which
are reportable: 1) Containerboard and Corrugated Containers, 2) Consumer
Packaging and 3) Reclamation. For financial information relating to our
segments, see the information set forth in Note 16 in the Notes to Consolidated
Financial Statements.

CONTAINERBOARD AND CORRUGATED CONTAINERS SEGMENT

The Containerboard and Corrugated Containers segment includes four paper mills,
46 container plants and a wood products plant located in the United States, one
container plant located in Mexico and one container plant located in Puerto
Rico. In addition, we own 63% of a medium paper mill located in New Hampshire.
Our primary products include:

..    corrugated containers
..    containerboard
..    solid bleached sulfate

We produce a full range of high quality corrugated containers designed to
protect, ship, store and display products made to our customers' merchandising
and distribution specifications. Corrugated containers are sold to a broad
range of manufacturers of consumable goods. Corrugated containers are used to
ship such diverse products as home appliances, electric motors, small
machinery, grocery products, produce, computers, books, furniture and many
other products. We provide customers with innovative packaging solutions to
advertise and sell their products. In addition, we manufacture and sell a
variety of retail ready, point of purchase displays and a full line of
specialty products, including pizza boxes, corrugated clamshells for the food
industry, Cordeck(R) recyclable pallets and custom die-cut boxes to display
packaged merchandise on the sales floor. Our container plants serve local
customers and large national accounts.

Our containerboard mills produce a full line of containerboard, which is used
primarily in the production of corrugated packaging. In 2001, we produced
803,000 tons of unbleached kraft linerboard, 276,000 tons of white top
linerboard and 255,000 tons of recycled medium. Our containerboard mills and
corrugated container operations are highly integrated, with the majority of our
containerboard used internally by our

                                        2

<PAGE>


corrugated container operations or by Stone Container's corrugated container
operations. In 2001, our container plants consumed 1,620,000 tons of
containerboard.

Our paper mills also produce solid bleached sulfate (SBS), specializing in
high-quality grades of SBS which are designed to meet the demanding print
requirements of folding carton and carded packaging customers in the food,
pharmaceutical, cosmetic and other niche markets. A portion of our SBS is
consumed internally by our folding carton plants.

Production for our paper mills, including our proportionate share of our
affiliate mill, and sales volume for our corrugated container facilities for
the last three years were:

                                                  2001     2000     1999
                                                  ----     ----     ----
Tons produced (in thousands)
  Containerboard .............................    1,334    1,433    1,592
  Solid bleached sulfate .....................      187      190      189
Corrugated containers sold (in billion sq. ft.)    27.1     28.7     29.1

CONSUMER PACKAGING SEGMENT

The Consumer Packaging segment includes seven paper mills, 17 folding carton
plants and nine other converting plants located in the United States. Our
primary products include:

..    folding cartons
..    coated and uncoated recycled boxboard
..    laminated products
..    paper, foil and heat transfer labels
..    rotogravure cylinders

Folding cartons are used primarily to protect customers' products, while
providing point of purchase advertising. We produce a full range of carton
styles appropriate to nearly all carton end uses. The folding carton plants
offer extensive converting capabilities, including sheet and web lithographic,
rotogravure and flexographic printing and laminating. The folding carton plants
also provide a full line of structural and graphic design services tailored to
specific technical requirements, as well as photography for packaging, sales
promotion concepts and point of purchase displays. Converting capabilities
include gluing, tray forming, windowing, waxing and laminating, plus other
specialties. Our customer base is made up primarily of producers of packaged
foods, beverages, fast food, detergents, paper, pharmaceuticals and cosmetics.
Our customers range from local accounts to large national accounts.

Our coated recycled boxboard mills produce the broadest range of recycled
grades in the industry, including clay-coated newsback, kraftback and
whiteback, as well as waxable and laminated grades. Our coated boxboard mills
and folding carton operations are highly integrated, with the majority of our
coated boxboard used internally by our folding carton operations. In 2001, our
folding carton and lamination plants consumed 519,000 tons of recycled boxboard
and solid bleached sulfate, representing an integration level of approximately
68%.

Our uncoated recycled boxboard production is used primarily in the manufacture
of paper tube and core products. Uncoated boxboard products include reclaimed
fiber drum stock, tube stock, bending chip, shoe boxboard, partitions and other
specialty boxboard.

                                        3

<PAGE>

All of our boxboard is made from 100 percent reclaimed fiber. Production for
the coated and uncoated boxboard mills and sales volume for the folding carton
facilities for the last three years were:

                                          2001  2000  1999
                                          ----  ----  ----
Tons produced (in thousands)
  Coated boxboard ......................   569   590   581
  Uncoated boxboard ....................   118   126   118
Folding cartons sold (tons, in thousands)  523   561   549

We produce paper and metallized paper labels and DI-NA-CAL(R) heat transfer
labels which are used in a wide range of industrial and consumer product
applications. DI-NA-CAL(R) is a proprietary labeling system that applies
high-speed heat transfer labels to plastic containers. We also produce
specialized laminations of film, foil and paper and high-quality rotogravure
cylinders. We have a full-service organization experienced in the production of
color separations and lithographic film for the commercial printing,
advertising and packaging industries.

RECLAMATION SEGMENT

Our reclamation operations procure fiber resources for Smurfit-Stone's paper
mills as well as for other producers. We operate 23 reclamation facilities
throughout the United States that collect, sort, grade and bale recovered
paper. We also collect aluminum and glass for resale to manufacturers of these
products. In addition, we operate a nationwide brokerage system whereby we
purchase and resell recovered paper to Smurfit-Stone's recycled paper mills and
other producers on a regional and national contract basis. Brokerage contracts
provide bulk purchasing, resulting in lower prices and cleaner recovered paper.
Many of our reclamation facilities are located close to Smurfit-Stone's
recycled paper mills, ensuring availability of supply with minimal shipping
costs. Domestic tons of fiber reclaimed and brokered collected for 2001, 2000
and 1999 were 6,714,000, 6,768,000, and 6,560,000, respectively.

NON-REPORTABLE SEGMENT

SPECIALTY PACKAGING
We produce paper tubes and cores, solid fiber partitions and flexible packaging
products at 24 locations in the United States and one plant in Canada. Paper
tubes and cores are used primarily for paper, film and foil, yarn carriers and
other textile products and furniture components. Solid fiber partitions are
used by customers in the pharmaceutical, cosmetics, glass container, automotive
and medical supply industries. In addition, our contract packaging plant
provides custom contract packaging services, including cartoning, bagging,
liquid-filling or powder-filling and high-speed overwrapping.

FIBER RESOURCES
---------------

Wood fiber and reclaimed fiber are the principal raw materials used in the
manufacture of our paper products. We satisfy the majority of our need for wood
fiber through purchases on the open market or under supply agreements. We
satisfy essentially all of our need for reclaimed fiber through our reclamation
operations and our nationwide brokerage system.

Wood fiber and reclaimed fiber are purchased in highly competitive,
price-sensitive markets, which have historically exhibited price and demand
cyclicality. Conservation regulations have caused, and will likely continue to
cause, a decrease in the supply of wood fiber and higher wood fiber costs in
some of the regions in which we procure wood fiber. Fluctuations in supply and
demand for reclaimed fiber have occasionally caused tight supplies of reclaimed
fiber and, at those times, we have experienced an increase in the cost of such
fiber.

                                      4

<PAGE>

MARKETING
---------

Our marketing strategy is to sell a broad range of paper-based packaging
products to marketers of industrial and consumer products. In managing the
marketing activities of our paperboard mills, we seek to meet the quality and
service needs of the customers at our converting plants at the most efficient
cost, while balancing those needs against the demands of our open market
customers. Our converting plants focus on supplying both specialized packaging
with high value graphics that enhance a product's market appeal and high volume
commodity products.

We seek to serve a broad customer base for each of our industry segments and as
a result serve thousands of accounts from our plants. Each plant has its own
sales force and many have product design engineers and other service
professionals who are in close contact with customers to respond to their
specific needs. We complement our local plants' marketing and service
capabilities with regional and national design and service capabilities, as
well as national sales offices for customers who purchase through a centralized
purchasing office. National account business may be allocated to more than one
plant due to production capacity, logistics and equipment requirements.

Our business is not dependent upon a single customer or upon a small number of
major customers. We do not believe the loss of any one customer would have a
material adverse effect on our business.

COMPETITION
-----------

The markets in which we sell our principal products are highly competitive and
comprised of many participants. Although no single company is dominant, we do
face significant competitors in each of our businesses. Our competitors include
large vertically integrated companies as well as numerous smaller companies.
The industries in which we compete are particularly sensitive to price
fluctuations brought about by shifts in industry capacity and other cyclical
industry conditions. Other competitive factors include design, quality and
service, with varying emphasis depending on product line.

BACKLOG
-------

Demand for our major product lines is relatively constant throughout the year
and seasonal fluctuations in marketing, production, shipments and inventories
are not significant. Backlogs are not a significant factor in the industry. We
do not have a significant backlog of orders as most orders are placed for
delivery within 30 days.

RESEARCH AND DEVELOPMENT
------------------------

Our research and development center, located in Carol Stream, Illinois, uses
state-of-the-art technology to assist all levels of the manufacturing and sales
processes, from raw material supply through finished packaging performance.
Research programs have provided improvements in coatings and barriers,
stiffeners, inks and printing. Our technical staff conducts basic, applied and
diagnostic research, develops processes and products and provides a wide range
of other technical services.

We actively pursue applications for patents on new inventions and designs and
attempt to protect our patents against infringement. Nevertheless, we believe
our success and growth are more dependent on the quality of our products and
our relationships with customers, than on the extent of our patent protection.
We hold or are licensed to use certain patents, licenses, trademarks and trade
names on products, but we do not consider the successful continuation of any
material aspect of our business to be dependent upon such intellectual property.

                                      5

<PAGE>

EMPLOYEES
---------

We had approximately 13,800 employees at December 31, 2001, of which
approximately 13,500 were employees of U.S. operations. Approximately 8,300
(61%) of our domestic employees are represented by collective bargaining units.
The expiration dates of union contracts for our major paper mill facilities are
as follows:

..    Fernandina Beach, Florida - June 2003
..    Brewton, Alabama - October 2007

We believe our employee relations are generally good. We are currently in the
process of bargaining with unions representing production employees at a number
of our operations. There were no significant or material work stoppages during
2001. While the terms of our collective bargaining agreements may vary, we
believe the material terms of the agreements are customary for the industry,
the type of facility, the classification of the employees and the geographic
location covered thereby.

ENVIRONMENTAL COMPLIANCE
------------------------

Our operations are subject to extensive environmental regulation by federal,
state and local authorities. In the past, we have made significant capital
expenditures to comply with water, air, solid and hazardous waste and other
environmental laws and regulations. We expect to make significant expenditures
in the future for environmental compliance. Because various environmental
standards are subject to change, it is difficult to predict with certainty the
amount of capital expenditures that will ultimately be required to comply with
future standards.

In particular, the United States Environmental Protection Agency (EPA) has
finalized significant portions of its comprehensive rule governing the pulp,
paper and paperboard industry, known as the "Cluster Rule". Phase I of the
Cluster Rule required us to convert our bleached linerboard mill at Brewton,
Alabama to an elemental chlorine free bleaching process, to install systems at
several of our mills for the collection and destruction of low volume, high
concentration gases and to implement best management practices, such as spill
controls. These projects have been substantially completed at a cost of
approximately $77 million (of which approximately $7 million was spent in
2001). Phase II of the Cluster Rule will require the implementation of systems
to collect high volume, low concentration gases at various mills and has a
compliance date of 2006. Phase III of the Cluster Rule will require control of
particulate from recovery boilers, smelt tanks and lime kilns and has a
compliance date of 2005. We continue to study possible means of compliance with
Phases II and III of the Cluster Rule. Based on currently available
information, we estimate that the aggregate compliance cost of Phases II and
III of the Cluster Rule is likely to be in the range of $30 million to $35
million and that such cost will be incurred over the next five years.

In addition to Cluster Rule compliance, we also anticipate additional capital
expenditures related to environmental compliance. Excluding the spending on
Cluster Rule projects described above, for the past three years we have spent
an average of approximately $2 million annually on capital expenditures for
environmental purposes. Since our principal competitors are subject to
comparable environmental standards, including the Cluster Rule, it is our
opinion, based on current information, that compliance with environmental
standards should not adversely affect our competitive position. However, we
could incur significant expenditures due to changes in law or the discovery of
new information, which could have a material adverse effect on our operating
results.

                                      6

<PAGE>

ITEM 2.  PROPERTIES
         ----------

We maintain manufacturing facilities and sales offices throughout North
America. We believe our facilities are adequately insured, properly maintained
and equipped with machinery suitable for their use. Our manufacturing
facilities as of December 31, 2001 are summarized below.

                                     Number of Facilities           State
                                 ---------------------------
                                  Total     Owned     Leased     Locations (a)
                                 -------   -------   -------     -------------

United States
  Paper mills.....................   11        11                       8
  Corrugated container plants.....   46        35         11           21
  Consumer packaging plants.......   26        20          6           11
  Specialty packaging plants......   24         7         17           16
  Reclamation plants..............   23        16          7           14
  Cladwood(R) plants..............    2         2                       1
  Wood products plant.............    1         1                       1
                                    ---        --         --
  Subtotal........................  133        92         41           29

Canada and Other North America
 Corrugated container plants.....     2         2                     N/A
 Specialty packaging plant.......     1         1                     N/A
                                     --        --         --
 Subtotal........................     3         3                     N/A
                                     --        --         --

Total............................   136        95         41          N/A

(a) Reflects the number of states in which we have at least one manufacturing
    facility.

The paper mills represent approximately 57% of our investment in property,
plant and equipment. The approximate annual tons of productive capacity of our
paper mills, including our proportionate share of the affiliate's productive
capacity, at December 31, 2001 were:

                                                      Annual Capacity
                                                      ---------------
                                                      (in thousands)

Containerboard...........................................    1,641
Solid bleached sulfate...................................      200
Coated and uncoated boxboard.............................      729
                                                             -----
Total....................................................    2,570

Substantially all of our operating facilities have been pledged as collateral
under our various credit facilities. See Part II, Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources -- Financing Activities.

ITEM 3.  LEGAL PROCEEDINGS
         -----------------

LITIGATION
----------

Our subsidiary, Smurfit Newsprint Corporation, is a party to a Settlement
Agreement to implement a nationwide class action settlement of claims involving
Cladwood(R), a composite wood siding product manufactured by Smurfit Newsprint
that has been used primarily in the construction of manufactured or mobile
homes. The class action claimants alleged that Cladwood(R) siding on their homes
prematurely failed. The settlement was reached in connection with a class
action pending in King County, Washington and also resolved all other pending
class actions. As a result of the settlement in 1998, Smurfit Newsprint paid
$20 million into a settlement fund, plus up to approximately $6.5 million of
administrative costs, plaintiffs' attorneys' fees, and class representative
payments. Smurfit Newsprint retained a reversionary

                                        7

<PAGE>

interest in a portion of the settlement fund and, based on this interest,
obtained a return of $10 million from the fund in 2000. The claims period was
originally scheduled to expire in February 2002, but will be extended for up to
three years in accordance with a protocol that limits Smurfit Newsprint's
liability for future claims to the amount remaining in the claim fund.

In 1998, seven putative class action complaints were filed in the United States
District Court for the Northern District of Illinois and in the United States
District Court for the Eastern District of Pennsylvania. These complaints
alleged that Stone Container reached agreements in restraint of trade that
affected the manufacture, sale and pricing of corrugated products in violation
of antitrust laws. The complaints have been amended to name several other
defendants, including Jefferson Smurfit (U.S.) and Smurfit-Stone. The suits
seek an unspecified amount of damages arising out of the sale of corrugated
products for the period from October 1, 1993 through March 31, 1995. Under the
provisions of the applicable statutes, any award of actual damages could be
trebled. The complaints have been transferred to and consolidated in the United
States District Court for the Eastern District of Pennsylvania, which has
certified two plaintiff classes. The defendants' appeal of the class
certification rulings is pending in the Third Circuit Court of Appeals. We are
vigorously defending these cases.

We are a defendant in a number of lawsuits and claims arising out of the
conduct of our business, including those related to environmental matters.
While the ultimate results of such suits or other proceedings against us cannot
be predicted with certainty, we believe the resolution of these matters will
not have a material adverse effect on our consolidated financial condition or
results of operations.

ENVIRONMENTAL MATTERS
---------------------

Federal, state and local environmental requirements are a significant factor in
our business. We employ processes in the manufacture of paperboard and other
products which result in various discharges, emissions, and wastes. These
processes are subject to numerous federal, state and local environmental laws
and regulations, including reporting and disclosure obligations. We operate and
expect to continue operating under permits and similar authorizations from
various governmental authorities that regulate such discharges, emissions and
wastes.

We also face potential liability as a result of releases, or threatened
releases, of hazardous substances into the environment from various sites owned
and operated by third parties at which company-generated wastes have allegedly
been deposited. Generators of hazardous substances sent to off-site disposal
locations at which environmental problems exist, as well as the owners of those
sites and certain other classes of persons (generally referred to as
"potentially responsible parties" or "PRPs"), are, in most instances, subject
to joint and several liability for response costs for the investigation and
remediation of such sites under the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA) and analogous state laws, regardless of
fault or the lawfulness of the original disposal. We have received notice that
we are or may be a PRP at a number of federal and/or state sites where response
action may be required and as a result may have joint and several liability for
cleanup costs at such sites. However, liability for CERCLA sites is typically
shared with other PRPs and costs are commonly allocated according to relative
amounts of waste deposited. Our relative percentage of waste deposited at these
sites ranges from 1% to 6%. In addition to participating in the remediation of
sites owned by third parties, we have entered into consent orders for the
investigation and/or remediation of certain company-owned properties.

Based on current information, we believe the probable costs of the potential
environmental enforcement matters discussed above, response costs under CERCLA
and similar state laws, and the remediation of owned property will not have a
material adverse effect on our financial condition or results of operations. As
of December 31, 2001, we had approximately $15 million reserved for
environmental liabilities. We believe that our liability for these matters was
adequately reserved at December 31, 2001.

                                        8

<PAGE>

                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         -------------------------------------------------------------
         MATTERS
         -------

MARKET INFORMATION
------------------

We are a wholly-owned subsidiary of Smurfit-Stone, and therefore, all of our
outstanding common stock is owned by Smurfit-Stone. As a result, there is no
established public market for our common stock.

DIVIDENDS ON COMMON STOCK
-------------------------

We paid dividends to Smurfit-Stone in the aggregate amount of approximately $8
million in 2001 to fund the dividend obligations of Smurfit-Stone to the
holders of the 7% Series A Cumulative Exchangeable Redeemable Convertible
Preferred Stock of Smurfit-Stone. Our ability to pay dividends in the future is
restricted by certain provisions contained in Jefferson Smurfit (U.S.)'s credit
agreement and the indentures relating to Jefferson Smurfit (U.S.)'s outstanding
indebtedness, which we guarantee. See Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources.

                                        9

<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA
         -----------------------
(In millions, except statistical data)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
                                                          2001      2000    1999      1998      1997
------------------------------------------------------------------------------------------------------
<S>                                                      <C>      <C>      <C>       <C>       <C>
SUMMARY OF OPERATIONS (a)
Net sales.............................................   $ 3,466  $ 3,867  $ 3,413   $ 3,155   $ 3,060
Income (loss) from operations (b) (c).................       243      346      633       (78)      176
Income (loss) from continuing operations before
  extraordinary item and cumulative effect of
  accounting change...................................       110      146      276      (171)      (19)
Discontinued operations, net of income tax provision..                  6        6        27        20
Net income (loss).....................................       108      151      272      (160)        1

------------------------------------------------------------------------------------------------------
OTHER FINANCIAL DATA
Net cash provided by operating activities.............   $   183  $   247   $  103   $   117   $    88
Net cash provided by (used for) investing activities..       (75)    (129)     829      (595)     (175)
Net cash provided by (used for) financing activities..      (118)    (108)    (939)      484        87
Depreciation, depletion and amortization..............       124      120      134       134       127
Capital investments and acquisitions..................        86      116       69       265       191
Working capital, net..................................       (12)     104       41       145        71
Property, plant, equipment and timberland, net........     1,223    1,262    1,309     1,760     1,788
Total assets..........................................     2,544    2,667    2,736     3,174     2,771
Long-term debt........................................     1,427    1,529    1,636     2,570     2,040
Stockholder's deficit.................................       (44)     (84)    (235)     (538)     (374)

------------------------------------------------------------------------------------------------------
STATISTICAL DATA (TONS IN THOUSANDS)
Containerboard production (tons)......................     1,334    1,433    1,592     1,978     2,024
Solid bleached sulfate production (tons)..............       187      190      189       185       190
Coated boxboard production (tons).....................       569      590      581       582       585
Uncoated boxboard production (tons)...................       128      169      165       175       176
Corrugated containers sold (billion sq. ft.)..........      27.1     28.7     29.1      29.9      31.7
Folding cartons sold (tons)...........................       523      561      549       507       463
Fiber reclaimed and brokered (tons)...................     6,714    6,768    6,560     5,155     4,832
Number of employees...................................    13,800   14,100   14,400    15,000    15,800
</TABLE>

(a)  Our subsidiary, Smurfit Newsprint, completed its exit from the
     newsprint business in May 2000. Accordingly, the newsprint operations are
     presented as a discontinued operation.

(b)  We recorded a gain of $407 million on the sale of our timberlands in
     1999.

(c)  In connection with the Stone Container merger, we recorded charges of
     $310 million in the fourth quarter of 1998, including $257 million of
     restructuring charges, $30 million for settlement of our Cladwood(R)
     litigation and $23 million of merger-related costs. We recorded
     additional restructuring charges in 1999 and 2001 of $9 million and $4
     million, respectively.

                                       10

<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         ---------------------------------------------------------------
         RESULTS OF OPERATIONS
         ----------------------

GENERAL
-------

Market conditions and demand for containerboard and corrugated containers, our
primary products, have historically been subject to cyclical changes in the
economy and changes in industry capacity, both of which can significantly
impact selling prices and our profitability.

Market conditions were generally strong in 1999 and the first half of 2000.
Linerboard prices increased to $480 per ton during this period and held through
the end of 2000. Corrugated container shipments for the industry in 1999
increased approximately 2% compared to 1998. Domestic economic growth began to
slow in the second half of 2000, however, and corrugated container shipments
for the industry in 2000 declined 1% compared to 1999. Market conditions
continued to deteriorate in 2001 and industry demand for corrugated containers
declined 6% compared to 2000, the worst performance since 1975. This slowdown
in the U.S. economy, in addition to weak export markets, exerted downward
pressure on containerboard demand. In order to maintain a balance between
supply and demand, the containerboard industry took extensive market related
downtime in 2000 and 2001. The sluggish corrugated demand in 2001 and the
excess supply of containerboard resulted in an 11% decline in linerboard
pricing to $425 per ton by the end of 2001. Corrugated container prices also
declined during this period. In February 2002, linerboard declined an
additional $5 per ton to $420 per ton. We do not expect a recovery in demand
for corrugated containers until the U.S. economy strengthens.

Market conditions in the folding carton and recycled boxboard mill industry
were strong in 1999 and 2000 and sales price increases were implemented in the
fourth quarter of 1999 and the second quarter of 2000. For 2000, coated
recycled boxboard prices were higher than 1999 by $40 per ton. Industry
shipments of folding cartons increased 3% in 2000. Recycled boxboard mill
operating rates were lower, however, and production of recycled folding grades
decreased 1% compared to 1999. Markets were steady in the first half of 2001,
but weakened in the second half. Industry prices for folding cartons were
higher in 2001 by 1%. Industry shipments of folding cartons declined by 1% and
recycled boxboard mill production declined by 5% in 2001.

Wood fiber and reclaimed fiber are the principal raw materials used in the
manufacture of our products. Demand for reclaimed fiber was strong in 1999
primarily as a result of strong export demand. Demand weakened however, in the
second half of 2000 as the containerboard industry took extensive market
related downtime. Prices declined in 2000 and continued to be depressed
throughout 2001 as more paper mills took downtime to manage their inventories.
The price of old corrugated containers, commonly known as OCC, the principal
grade used in recycled containerboard mills, was lower in 2001 compared to 2000
by approximately 40%. Wood fiber prices, in areas where we procure wood,
increased 1% in 2001 compared to 2000.

                                       11

<PAGE>

RESULTS OF OPERATIONS
---------------------

<TABLE>
<CAPTION>
Segment Data
(In millions)                                  2001                  2000                   1999
                                          ---------------      ----------------       ----------------
                                           Net    Profit/        Net    Profit/         Net    Profit/
                                          Sales   (Loss)        Sales   (Loss)         Sales   (Loss)
                                          ------  ------       -------  ------        ------   ------
<S>                                       <C>     <C>            <C>     <C>           <C>     <C>
Containerboard and corrugated containers  $1,905  $ 156          $2,033  $ 220         $1,818  $ 195
Consumer packaging ...................       982     91           1,017     99            951     91
Reclamation ..........................       375      6             605     26            452     17
Other operations .....................       204      9             212     13            192     16
                                          ------  -----          ------  -----         ------  -----
  Total operations ...................    $3,466    262          $3,867    358         $3,413    319
                                          ======                 ======                ======

Restructuring charges ................               (4)                                          (9)
Gain on sale of assets ...............                1                      4                   407
Interest expense, net ................              (60)                  (103)                 (175)
Corporate expenses and other .........              (13)                   (14)                  (80)
                                                   -----                 -----                  -----
Income from continuing operations before
  income taxes and extraordinary item             $ 186                  $ 245                 $ 462
                                                  =====                  =====                 ======
</TABLE>

Corporate expenses and other include corporate expenses, intracompany profit
elimination and LIFO expense, goodwill amortization, corporate charges to
segments for working capital interest and other expenses not allocated to
segments. The effects of lower intracompany profit elimination and LIFO expense
favorably impacted corporate expenses and other in 2000 and 2001.

2001 COMPARED TO 2000
---------------------

Poor market conditions for our major products led to a 10% decline in our
consolidated net sales in 2001. Lower sales prices for containerboard,
corrugated containers and reclamation products, and reduced shipments of
containerboard, corrugated containers and folding cartons were the major
reasons for the decline. In addition, the closure of a paper machine, a
trucking operation and the sale of three reclamation facilities negatively
impacted net sales by $33 million. The decrease in net sales for each of our
segments is summarized in the chart below.

<TABLE>
<CAPTION>
                             Containerboard
                              & Corrugated      Consumer                    Other
(In millions)                   Containers      Packaging    Reclamation  Operations     Total
                             --------------    -----------   -----------  ----------     -----
<S>                          <C>               <C>           <C>          <C>          <C>
Sales prices and product mix .     $  (45)        $  21        $ (236)      $ (3)        $(263)
Sales volume .................        (78)          (56)           34         (5)         (105)
Closed or sold facilities ....         (5)                        (28)                     (33)
                                   -------        ------       -------      -----        ------
    Total ....................     $ (128)        $ (35)       $ (230)      $ (8)        $(401)
                                   =======        ======       =======      =====        ======
</TABLE>

Income from continuing operations before income taxes and extraordinary item
was $186 million, a decrease of $59 million compared to 2000. The decrease was
due primarily to the decline in earnings of our operating segments,
particularly in the Containerboard and Corrugated Containers segment. Interest
expense, net was lower compared to 2000, partially offsetting the declines in
segment earnings. Net income was $108 million in 2001 compared to $151 million
in 2000.

COSTS AND EXPENSES
Consolidated cost of goods sold decreased due primarily to lower reclaimed
fiber cost and lower sales volumes. Reclaimed fiber cost was lower by
approximately $245 million. Cost of goods sold was unfavorably impacted by
higher energy cost of $26 million. Cost of goods sold as a percent of net sales
increased to 85% compared to 84% in 2000 due primarily to the effects of our
lower average sales prices. Selling and administrative expense as a percent of
net sales was 8% compared to 7% in 2000 due to our lower average sales prices.

                                      12

<PAGE>

During 2001, we recorded a restructuring charge of $4 million related to the
closure of a paper machine and related operation that produced approximately
50,000 tons of uncoated recycled boxboard annually and a trucking operation.

Interest expense, net declined $43 million due to the favorable impacts of: $23
million from lower overall average interest rates; $11 million from lower
average borrowings; and $9 million from higher interest income. The overall
average effective interest rate in 2001 was lower than 2000 by 1.5%. Interest
income for 2001 included $65 million of accrued interest on our intercompany
notes receivable from Smurfit-Stone compared to $53 million accrued in 2000.

Other, net in our Consolidated Statements of Operation was comparable to 2000.

Provision for income taxes in 2001 differed from the federal statutory tax rate
due to several factors, the most significant of which was state income taxes.
For information concerning income taxes, see Liquidity and Capital Resources
and Note 8 of the Notes to Consolidated Financial Statements.

CONTAINERBOARD AND CORRUGATED CONTAINERS SEGMENT
Net sales decreased by 6% due primarily to lower average sales prices and lower
sales volume for containerboard and corrugated containers. The weak market
conditions during 2001 resulted in excessive supplies of containerboard and
prices declined. We took market related downtime in order to maintain a lower
level of inventory. On average, corrugated container prices declined 1% and
linerboard prices were lower by 5%. Solid bleached sulfate prices were 2%
lower.

Production of containerboard declined 7% in 2001 because we curtailed
production to meet demand. We took approximately 284,000 tons of containerboard
market related downtime in 2001 compared to 181,000 tons in 2000. Corrugated
container sales volume decreased 6%. Solid bleached sulfate production
decreased 2%.

Profits decreased by $64 million due primarily to our lower average sales
prices. The higher level of market related downtime taken in 2001 and higher
energy cost also had a negative impact on profits. Profits were favorably
impacted by lower fiber cost. Cost of goods sold as a percent of net sales
increased from 83% in 2000 to 86% in 2001 due primarily to our lower average
sales prices.

CONSUMER PACKAGING SEGMENT
Net sales decreased by 3% due primarily to lower sales volume for folding
cartons. Sales of laminated products and recycled boxboard were also lower. On
average, folding carton sales prices were 3% higher than last year, but coated
boxboard sales prices were 3% lower and uncoated boxboard sales prices were 4%
lower. Sales volume of folding cartons decreased 7% due to overall economic
conditions, an industry-wide decline in the soap powder business and the
expiration of certain customer contracts. Production of coated boxboard
decreased 4% and production of uncoated boxboard decreased 6%, excluding the
closure of our Los Angeles boxboard machine.

Profits declined 8% due primarily to lower sales volume for folding cartons,
higher converting cost and higher energy cost. Profits were favorably impacted
by lower reclaimed fiber cost. Cost of goods sold as a percent of net sales was
83% in 2001, unchanged from 2000.

RECLAMATION SEGMENT
Net sales decreased 38% due primarily to lower average sales prices and the
sale of three facilities. Demand for OCC was weak as a result of the
significant amount of market related downtime taken by domestic containerboard
paper mills. Export markets were strong in 2001. On average, OCC prices
decreased 40% and old newsprint prices decreased 34%. Profits decreased $20
million (77%) due primarily to our lower average sales prices. Cost of goods
sold as a percent of net sales was 91% in 2001, unchanged from last year.

                                      13

<PAGE>

OTHER OPERATIONS
Net sales decreased 4% due primarily to lower average sales prices and lower
sales volumes for specialty products. Profits declined $4 million to $9 million
due primarily to the lower average sales prices.

2000 COMPARED TO 1999
---------------------

Improvements in containerboard and other markets in 2000 were the primary
reasons for the increase in net sales. Consolidated net sales increased 13%
compared to 1999. The increase in net sales for each of our segments is
summarized in the chart below.

<TABLE>
<CAPTION>
                              Containerboard
                              & Corrugated      Consumer                     Other
(In millions)                   Containers      Packaging     Reclamation  Operations     Total
                              --------------    ----------    -----------  ----------     -----
<S>                               <C>           <C>           <C>          <C>            <C>
Sales prices and product mix ..   $ 263           $ 55           $ 104        $ 17        $ 439
Sales volume ..................      18             15              70           3          106
Closed facilities .............     (66)            (4)            (21)                     (91)
                                  -----           -----          -----        ----        -----
Total .........................   $ 215           $ 66           $ 153        $ 20        $ 454
                                  =====           =====          =====        ====        =====
</TABLE>

COSTS AND EXPENSES
Consolidated cost of goods sold increased compared to 1999 due primarily to
higher reclaimed fiber cost and higher sales volume. Reclaimed fiber cost was
higher by approximately $130 million. Energy cost was higher by $22 million.
Cost of goods sold as a percent of net sales was 84%, comparable to 1999.

Selling and administrative expenses declined compared to 2000 as a result of
$26 million of expense in 1999 related to the cashless exercise of
Smurfit-Stone stock options under the Jefferson Smurfit Corporation stock
option plan. Selling and administrative expense as a percent of net sales
declined from 9% in 1999 to 7% in 2000, primarily as a result of the higher
sales prices in 2000.

Gain on sale of assets in our Consolidated Statements of Operations for 2000
declined $403 million due primarily to a gain of $407 million recorded in 1999
on the sale of our timberlands.

Interest expense, net declined $72 million due to the favorable impacts of $73
million from lower average borrowings and $6 million from higher interest
income. Interest expense was unfavorably impacted by $7 million from higher
overall average interest rates. Our overall average effective interest rate in
2000 was higher than in 1999 by 0.5%. Interest income for 2000 included $53
million of accrued interest on our intercompany notes receivable from
Smurfit-Stone compared to $49 million accrued in 1999.

The effective income tax rate in 2000 differed from the federal statutory tax
rate due to several factors, the most significant of which was state income
taxes. For information concerning income taxes, see Liquidity and Capital
Resources and Note 8 of the Notes to Consolidated Financial Statements.

CONTAINERBOARD AND CORRUGATED CONTAINERS SEGMENT
Net sales increased by 12% and profits improved by $25 million (13%) to $220
million. Market conditions were stronger in the first half of the year,
enabling us to implement a linerboard price increase on February 1, followed by
corresponding price increases for corrugated containers. Although shipments
grew weaker as the year progressed, we were able to maintain the price
increases achieved earlier in the year. On average, corrugated container prices
improved 16% and linerboard was higher by 17%. Solid bleached sulfate prices
also increased during the year and, on average, were 6% higher.

Production of containerboard declined 10% and corrugated container shipments
declined 1%. Containerboard volume declined as a result of higher levels of
market related downtime. Corrugated

                                      14

<PAGE>

container sales volume decreased as a result of plant closures and weaker
demand in the second half of 2000. Solid bleached sulfate production increased
1%.

Profits increased due to the higher average sales prices, although market
related downtime and higher cost of energy and fiber partially offset the sales
price improvements. Cost of goods sold as a percent of net sales increased from
82% in 1999 to 83% in 2000 due primarily to the increased market related
downtime and the sale of our timberland operations.

CONSUMER PACKAGING SEGMENT
Net sales for 2000 increased by 7% due to higher sales prices and an increase
in shipments. For the year, on average, coated boxboard sales prices were 8%
higher and folding carton sales prices were 6% higher. Uncoated boxboard sales
prices were 10% higher. Sales volume of folding cartons increased 2%.
Production of coated boxboard increased 2% and production of uncoated boxboard
increased 7%.

Profits improved 9% due primarily to the improvement in sales prices. An
increase in reclaimed fiber cost and higher energy cost partially offset the
improvement in pricing. Profits in the label operations declined due to
competitive pricing and increases in raw material cost. Cost of goods sold as a
percent of net sales was 83% in 2000, unchanged from 1999.

RECLAMATION SEGMENT
Net sales increased 34% due to higher sales prices and an increase in third
party shipments. Demand for OCC was strong in the first half of 2000, but
weakened in the second half as more paper mills took downtime to manage their
inventories. Sales prices were higher in the first half of the year as a result
of the strong demand. On average for 2000, OCC sales prices increased 8% and
old newsprint prices increased 47%. An increase in the cost of reclaimed fiber
partially offset the improvement in sales price. Profits increased $9 million
due primarily to higher average sales prices and volume and lower employee
compensation cost. Cost of goods sold as a percent of net sales increased from
89% in 1999 to 91% in 2000 due primarily to the higher cost of reclaimed fiber.

OTHER OPERATIONS
Net sales for 2000 increased 10% due primarily to higher sales prices. Profits
in 2000 declined $3 million to $13 million due primarily to lower sales volume.

DISCONTINUED OPERATIONS
-----------------------

In February 1999, we adopted a formal plan to sell the operating assets of our
subsidiary, Smurfit Newsprint. Accordingly, the newsprint operations of Smurfit
Newsprint were accounted for as a discontinued operation. In November 1999, we
sold our Newberg, Oregon newsprint mill for approximately $211 million. In May
2000, we transferred ownership of the Oregon City, Oregon newsprint mill to a
third party, thereby completing our exit from the newsprint business. We
received no proceeds from the transfer. The 1999 results of discontinued
operations included the realized gain on the sale of the Newberg mill, an
expected loss on the transfer of the Oregon City mill, the actual results from
the measurement date through December 31, 1999 and the estimated losses on the
Oregon City mill through the expected disposition date. In 2000, we recorded a
$6 million after-tax gain to reflect adjustments to estimates made in 1999 on
disposition of discontinued operations.

RESTRUCTURINGS AND SMURFIT-STONE MERGER
---------------------------------------

In 2001, we recorded restructuring charges of $4 million related to the closure
of a paper machine and related operation and a trucking operation. The assets
of the facilities closed in 2001 were adjusted to their estimated fair value
less cost to sell, resulting in a $2 million non-cash write down. These
shutdowns resulted in approximately 75 employees being terminated.

                                      15

<PAGE>

As explained in our 2000 Annual Report on Form 10-K, we had $23 million of exit
liabilities remaining as of December 31, 2000 related to the Smurfit-Stone
merger and from our restructuring activities. During 2001, we incurred
approximately $5 million of cash expenditures for exit liabilities. Exit
liabilities of $20 million remained as of December 31, 2001. Since the
Smurfit-Stone merger, through December 31, 2001, we have incurred approximately
$53 million (73%) of the planned cash expenditures to close facilities, pay
severance and pay other exit liabilities. Future cash outlays, principally for
long-term commitments, are expected to be $4 million in 2002, $2 million in
2003 and $14 million thereafter. The remaining cash expenditures in connection
with the restructuring will continue to be funded through operations as
originally planned.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

GENERAL
Cash provided by operating activities in 2001 totaled $183 million compared to
$247 million in 2000. The largest factor in the 2001 decrease was the decline
in earnings of our Containerboard and Corrugated Containers segment, although
the decline was partially offset by a reduction in net interest expense. In
2001, we had additional cash provided from new borrowings, which, net of
financing fees and other refinancing costs, totaled $271 million and asset
sales of $6 million. Our primary uses of cash in 2001 were $381 million for
debt repayments, $86 million for property, plant and equipment and $8 million
for dividends to Smurfit-Stone.

As of December 31, 2001, our wholly-owned subsidiary, JSC Capital Corporation,
has unsecured intercompany notes receivable from Smurfit-Stone totaling $499
million. The loans arose primarily in connection with the Smurfit-Stone merger
and include interest accrued from November 18, 1998, the date of the merger.
With the exception of a note issued November 15, 2000, the notes bear interest
at the rate of 14.21% per annum. The note issued on November 15, 2000 was in
the amount of $30 million and bears interest at the rate of 15.39% per annum.
Smurfit-Stone has the option of paying the interest in cash or compounding the
interest into the principal amount of the notes. Interest income since
inception has been added to the principal amount of the notes. All of the notes
have a maturity date of November 18, 2004.

We expect internally generated cash flows, available borrowing capacity under
the Jefferson Smurfit (U.S.) credit agreement and future financing activities
will be sufficient for the next several years to meet our obligations,
including debt service, expenditures related to environmental compliance and
other capital expenditures. Scheduled debt payments for 2002 and 2003 total
$150 million and $746 million, respectively. We are exploring a number of
options to repay or refinance these debt maturities. We have historically had
good access to the capital markets and expect to be able to repay or refinance
these debt maturities before their maturity dates. Although we believe we will
have access to the capital markets in the future, these markets are volatile
and we cannot predict the condition of the markets or the timing of any related
transactions. Access to the capital markets may be limited or unavailable due
to an unpredictable material adverse event unrelated to our operational or
financial performance. In such event, we would explore additional options,
including, but not limited to, the sale or monetization of assets.

We intend to hold capital expenditures for 2002 significantly below our
anticipated depreciation level of $116 million. As of December 31, 2001, we had
authorized commitments for capital expenditures of $50 million, including $16
million for environmental projects, $5 million to maintain competitiveness and
$29 million for upgrades, modernization and expansion.

We expect to use any excess cash flows provided by operations to make further
debt reductions. As of December 31, 2001, Jefferson Smurfit (U.S.) had $437
million of unused borrowing capacity under its bank credit facility and $28
million of unused borrowing capacity under our $229 million accounts receivable
securitization program, subject to Jefferson Smurfit (U.S.)'s level of eligible
accounts receivable.

                                      16

<PAGE>

FINANCING ACTIVITIES
In January 2001, Jefferson Smurfit (U.S.) prepaid its $65 million Tranche B
term loan balance with borrowings under the revolving credit facility.

In March 2001, the Jefferson Smurfit (U.S.) accounts receivable securitization
program was amended to (i) reduce the borrowings available through the issuance
of commercial paper or under the revolving credit facility from $300 million to
$214 million and (ii) extend the final maturity on these borrowings from
February 2002 to February 2004. A $15 million term loan was also outstanding as
of December 31, 2001, bringing the total program size at December 31, 2001 to
$229 million. The $15 million term loan was repaid in February 2002.

In March 2001, Jefferson Smurfit (U.S.) amended its existing credit agreement
to (i) permit a $275 million new Tranche B term loan and (ii) waive the
requirement to make a $59 million term loan payment due March 31, 2001,
resulting from excess cash flows generated in 2000.

In April 2001, Jefferson Smurfit (U.S.) closed on a new $275 million Tranche B
term loan maturing in March 2007. The interest rate is, at the option of
Jefferson Smurfit (U.S.), either (i) the alternate base rate, as defined, or
(ii) LIBOR, in each case, plus an additional margin. The interest rate was
LIBOR plus 2.00% (4.13%) at December 31, 2001. In May 2001, the proceeds of the
term loan, along with additional borrowings of approximately $16 million under
the Jefferson Smurfit (U.S.) revolving credit facility, were used to call, at
par, the $287 million 11.25% senior notes due in 2004 and pay related fees and
expenses.

The obligations under the Jefferson Smurfit (U.S.) credit agreement are
unconditionally guaranteed by JSCE, Smurfit-Stone and certain subsidiaries of
Jefferson Smurfit (U.S.). The obligations under the Jefferson Smurfit (U.S.)
credit agreement are secured by a security interest in substantially all of the
assets of Jefferson Smurfit (U.S.) and its subsidiaries.

In January 2002, Jefferson Smurfit (U.S.) obtained a waiver and an amendment
from its lender group for relief from certain financial covenant requirements
under the Jefferson Smurfit (U.S.) credit agreement as of December 31, 2001.
The amendment eased certain quarterly financial covenant requirements as of
December 31, 2001 and for future periods. The credit agreement contains various
covenants and restrictions including, among other things, (i) limitations on
dividends, redemptions and repurchases of capital stock, (ii) limitations on
the incurrence of indebtedness, liens, leases and sale-leaseback transactions,
(iii) limitations on capital expenditures and (iv) maintenance of certain
financial covenants. The credit agreement also requires prepayments of the term
loans from excess cash flows, as defined, and proceeds from certain asset
sales, insurance and incurrence of certain indebtedness. Such restrictions,
together with our highly leveraged position, could restrict our corporate
activities, including our ability to respond to market conditions, to provide
for unanticipated capital expenditures or to take advantage of business
opportunities. We believe the likelihood of our breaching our debt covenants in
2002 is remote absent any material adverse event affecting the U.S. economy as
a whole. We also believe that if a material adverse event would affect us, our
lenders would provide waivers if necessary. However, our expectations of future
operating results and continued compliance with our debt covenants cannot be
assured and we cannot control our lenders' actions. If our debt is placed in
default, we would experience a material adverse impact on our financial
condition.

Loans under Jefferson Smurfit (U.S.)'s revolving credit facility and Tranche A
term loan bear interest at variable rates selected at the option of Jefferson
Smurfit (U.S.) equal to adjusted LIBOR plus a margin ranging from 2.5% to 1.5%
or the alternate base rate (ABR) (as defined) plus a margin ranging from 1.5%
to 0.5%. Outstanding loans under Jefferson Smurfit (U.S.)'s Tranche B term loan
bear interest at variable rates equal to adjusted LIBOR plus a margin ranging
from 2.00% to 3.25%.

ENVIRONMENTAL MATTERS
Phase I of the Cluster Rule required us to convert our bleached linerboard mill
at Brewton, Alabama to an elemental chlorine free bleaching process, to install
systems at several of our mills for the collection and

                                      17

<PAGE>

destruction of low volume, high concentration gases and to implement best
management practices, such as spill controls. These projects were substantially
completed at a cost of approximately $77 million as of December 31, 2001 (of
which approximately $7 million was spent in 2001). Phase II of the Cluster Rule
will require the implementation of systems to collect high volume, low
concentration gases at various mills and has a compliance date of 2006. Phase
III of the Cluster Rule will require control of particulate from recovery
boilers, smelt tanks and lime kilns and has a compliance date of 2005. We
continue to study possible means of compliance with Phases II and III of the
Cluster Rule. Based on currently available information, we estimate that the
aggregate compliance cost of Phases II and III of the Cluster Rule is likely to
be in the range of $30 million to $35 million and that such cost will be
incurred over the next five years.

In addition to Cluster Rule compliance, we anticipate additional capital
expenditures related to environmental compliance. Excluding the spending on
Cluster Rule projects described above, for the past three years we have spent
an average of approximately $2 million annually on capital expenditures for
environmental purposes. We anticipate that environmental capital expenditures
will be approximately $3 million in 2002.

TRANSFER OF FINANCIAL ASSETS
----------------------------

At December 31, 2001, we had one off-balance sheet financing arrangement. We
sold 980,000 acres of owned and leased timberland in October 1999. The final
purchase price, after adjustments, was $710 million. We received $225 million
in cash and $485 million in the form of installment notes. Under our program to
monetize the installment notes receivable, the notes were sold, without
recourse, to Timber Notes Holdings LLC (TNH), a wholly-owned subsidiary of
Jefferson Smurfit (U.S.) and a qualified special purpose entity under the
provisions of Statement of Financial Accounting Standard (SFAS) No. 140, for
$430 million cash proceeds and a residual interest in the notes. The residual
interest included in other assets in the accompanying consolidated balance
sheet was $40 million at December 31, 2001. TNH and its creditors have no
recourse to us in the event of default on the installment notes.

EFFECTS OF INFLATION
--------------------

Although inflation has slowed in recent years, it is still a factor in the
economy and we continue to seek ways to mitigate its impact. In 2000, energy
resources were tight in certain areas of the United States and prices of
natural gas and purchased electricity escalated dramatically. Our paper mills
are large users of energy and we attempt to mitigate cost increases through
hedging programs and supply contracts. Natural gas prices increased
significantly in 2000 and held through the second quarter of 2001. Prices began
to decrease in the third quarter and by the end of 2001, had returned to more
traditional levels. With the exception of energy costs, inflationary increases
in operating costs have been moderate during the last three years and have not
had a material impact on our financial position or operating results.

We use the last-in, first-out method of accounting for approximately 82% of our
inventories. Under this method, the cost of goods sold reported in the
financial statements approximates current cost and thus provides a closer
matching of revenue and expenses in periods of increasing costs. On the other
hand, depreciation charges represent the allocation of historical costs
incurred over past years and are significantly less than if they were based on
the current cost of productive capacity being consumed.

CRITICAL ACCOUNTING POLICIES
----------------------------

Certain accounting issues require management estimates and judgments for the
preparation of financial statements. Our most significant policies requiring
the use of estimates and judgments are listed below.

ALLOWANCES FOR DOUBTFUL ACCOUNTS
We evaluate the collectibility of our accounts receivable on a case-by-case
basis, and make adjustments to the bad debt reserve for expected losses. We
consider such things as ability to pay, bankruptcy, credit

                                      18

<PAGE>

ratings and payment history. For all other accounts, we estimate reserves for
bad debt based on historical experience and past due status of the accounts.
Our write-offs in 2001 and 2000 were $2 million and $6 million, respectively.

PENSION
Our defined benefit pension plans, which cover substantially all of our
employees, are accounted for in accordance with SFAS No. 87, "Employers'
Accounting for Pensions." The most significant elements in determining pension
expense in accordance with SFAS No. 87 are the expected return on plan assets
and the discount rate used to discount plan liabilities. Our expected return on
plan assets is generally 9.5%. We believe that our assumption of future returns
is reasonable. Although the plan assets earned substantially less over the past
two years, our pension plan assets have earned in excess of the expected rate
over the long term. Our discount rate assumption is developed using the Moody's
Average Aa-Rated Corporate Bonds index as a benchmark. At December 31, 2001 the
discount rate used by us was 7.25%. See Note 9 of the Notes to Consolidated
Financial Statements.

INCOME TAX MATTERS
We frequently face challenges from domestic and foreign tax authorities
regarding the amount of taxes due. These challenges include questions regarding
the timing and amount of deductions and the allocation of income among various
tax jurisdictions. In evaluating the exposure associated with our various
filing positions, we record reserves for probable exposures. Based on our
evaluation of our tax positions, we believe we have appropriately accrued for
probable exposures. To the extent we were to prevail in matters for which
accruals have been established or be required to pay amounts in excess of our
reserves, our effective tax rate in a given financial statement period may be
materially impacted.

ENVIRONMENTAL LIABILITIES
We accrue environmental expenditures related to existing conditions, resulting
from past or current operations, when they become probable and estimable. Our
estimates are based on our knowledge of the particular site, environmental
regulations or the potential enforcement matter. Based on current information,
we believe the probable costs of the potential environmental enforcement
matters, response costs under CERCLA and similar state laws, and the
remediation of owned property discussed in Part I, Item 3, Legal Proceedings-
Environmental Matters will not have a material adverse effect on our financial
condition or results of operations. As of December 31, 2001, we had
approximately $15 million reserved for environmental liabilities. We believe
that our liability for these matters was adequately reserved at December 31,
2001.

PROSPECTIVE ACCOUNTING STANDARDS
--------------------------------

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
142, "Goodwill and Other Intangible Assets" effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized, but will be
subject to an annual impairment test. Other intangible assets will continue to
be amortized over their useful lives.

We will apply the new rules on accounting for goodwill and other intangible
assets beginning in the first quarter of 2002. Application of the
non-amortization provision of the Statement is expected to result in an
increase in net income of approximately $7 million per year. During 2002, we
will perform the first of the required impairment tests of goodwill as of
January 1, 2002. We have not determined what the effect of these tests will be
on our earnings and financial position.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 establishes accounting standards for the recognition
and measurement of an asset retirement obligation and its associated asset
retirement cost. It also provides accounting guidance for legal obligations
associated with the retirement of tangible long-lived assets. This statement is
effective for fiscal years beginning after June 15, 2002. We are currently
assessing the impact of this new standard.

                                      19

<PAGE>

In July 2001, the FASB issued SFAS No. 144, "Impairment or Disposal of
Long-Lived Assets," which is effective for fiscal years beginning after
December 15, 2001. The provisions of this statement provide a single accounting
model for impairment of long-lived assets, including discontinued operations.
The impact of this new standard is not expected to be material.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
         ----------------------------------------------------------

We are exposed to various market risks, including commodity price risk and
interest rate risk. To manage the volatility related to these risks, we enter
into various derivative contracts. We do not use derivatives for speculative or
trading purposes.

COMMODITY PRICE RISK
We periodically enter into exchange traded futures contracts to manage
fluctuations in cash flows resulting from commodity price risk in the
procurement of natural gas. As of December 31, 2001, we have futures contracts
to hedge approximately 65% to 80% of our expected natural gas requirements for
the months of January 2002 through March 2002. We have futures contracts to
hedge approximately 35% to 45% of our expected natural gas requirements for the
months of April 2002 through October 2002. Our objective is to fix the price of
a portion of our forecasted purchases of natural gas used in the manufacturing
process. The increases in energy cost discussed in Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations
included the impact of the natural gas futures contracts. See Note 6 of the
Notes to Consolidated Financial Statements.

INTEREST RATE RISK
Our earnings and cash flows are significantly affected by the amount of
interest on our indebtedness. Our financing arrangements include both fixed and
variable rate debt in which changes in interest rates will impact the fixed and
variable debt differently. A change in the interest rate of fixed rate debt
will impact the fair value of the debt, whereas a change in the interest rate
on the variable rate debt will impact interest expense and cash flows. Our
objective is to protect JSCE from interest rate volatility and reduce or cap
interest expense within acceptable levels of market risk. We may periodically
enter into interest rate swaps, caps or options to hedge interest rate exposure
and manage risk within company policy. We do not utilize derivatives for
speculative or trading purposes. Any derivative would be specific to the debt
instrument, contract or transaction, which would determine the specifics of the
hedge. There were no interest rate derivative contracts outstanding at December
31, 2001.

The table below presents principal amounts by year of anticipated maturity for
our debt obligations and related average interest rates based on the weighted
average interest rates at the end of the period. Variable interest rates
disclosed do not attempt to project future interest rates. This information
should be read in conjunction with Note 5 of the Notes to Consolidated
Financial Statements.

SHORT AND LONG-TERM DEBT
<TABLE>
<CAPTION>

Outstanding as of December 31, 2001                                              There-            Fair
(in millions)                             2002    2003    2004    2005    2006   after    Total    Value
---------------------------------------------------------------------------------------------------------
<S>                                       <C>     <C>     <C>     <C>     <C>     <C>     <C>      <C>
Bank term loans and revolver
  4.00% average interest rate (variable). $ 26    $ 52    $ 77    $150    $ 134   $134    $  573   $  567
Accounts receivable securitization
  2.17% average interest rate (variable).   15     186                                       201      201
Senior notes
  9.92% average interest rate (fixed)....  100     500                                       600      603
Industrial revenue bonds
  7.35% average interest rate (fixed)....            4                        9     15        28       28
Other....................................    9       4       1       1        3      7        25       25
                                         ----------------------------------------------------------------
Total debt............................... $150    $746    $ 78    $151    $ 146   $156    $1,427   $1,424
                                         ================================================================
</TABLE>

                                      20

<PAGE>

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
          -------------------------------------------

Index to Financial Statements:                                         Page No.
                                                                       --------

     Management's Responsibility for Financial Statements ...........     22
     Report of Independent Auditors .................................     23
     Consolidated Balance Sheets - December 31, 2001 and 2000 .......     24
     For the years ended December 31, 2001, 2000 and 1999:
          Consolidated Statements of Operations .....................     25
          Consolidated Statements of Stockholder's Equity (Deficit) .     26
          Consolidated Statements of Cash Flows .....................     27
     Notes to Consolidated Financial Statements .....................     28

The following consolidated financial statement schedule is included in
Item 14(a):

     II.  Valuation and Qualifying Accounts and Reserves                  47

All other schedules specified under Regulation S-X have been omitted because
they are not applicable, because they are not required or because the
information required is included in the financial statements or notes thereto.

                                      21

<PAGE>

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS

The management of JSCE, Inc. is responsible for the information contained in
the consolidated financial statements. The consolidated financial statements
have been prepared by us in accordance with accounting principles generally
accepted in the United States appropriate in the circumstances and necessarily
include certain amounts based on management's best estimate and judgment.

We maintain a system of internal accounting control, which we believe is
sufficient to provide reasonable assurance that in all material respects
transactions are properly authorized and recorded, financial reporting
responsibilities are met and accountability for assets is maintained. In
establishing and maintaining any system of internal control, judgment is
required to assess and balance the relative costs and expected benefits.
Management believes that through the careful selection of employees, the
division of responsibilities and the application of formal policies and
procedures, JSCE has an effective and responsive system of internal accounting
controls. The system is monitored by our staff of internal auditors, who
evaluate and report to management on the effectiveness of the system. In
addition, our business ethics policy requires employees to maintain a high
level of ethical standards in the conduct of the company's business.

/s/ Patrick J. Moore
-------------------------------
Patrick J. Moore
President and Chief Executive Officer

/s/ Paul K. Kaufmann
-------------------------------
Paul K. Kaufmann
Vice President and Corporate Controller
(Principal Accounting Officer)

                                      22

<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors
JSCE, Inc.

We have audited the accompanying consolidated balance sheets of JSCE, Inc. as
of December 31, 2001 and 2000, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 2001. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of JSCE, Inc. at
December 31, 2001 and 2000, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
2001 in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.

As discussed in Note 6 to the financial statements, in 2001 the Company changed
its method of accounting for derivative instruments and hedging activities.

                                                     /s/ Ernst & Young LLP
                                                     ---------------------
                                                     Ernst & Young LLP

St. Louis, Missouri
January 29, 2002

                                     23

<PAGE>

                                      JSCE, INC.
                             CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,  (In millions, except share data)                                    2001             2000
========================================================================================================
<S>                                                                          <C>              <C>
Assets

Current assets
  Cash and cash equivalents .............................................    $     11         $     21
  Receivables, less allowances of $11 in 2001 and $9 in 2000 ............         314              342
  Inventories
    Work-in-process and finished goods ..................................          78               93
    Materials and supplies ..............................................         109              124
                                                                              --------------------------
                                                                                  187              217
  Refundable income taxes ...............................................           4                7
  Deferred income taxes .................................................                            5
  Prepaid expenses and other current assets .............................          14               20
                                                                              --------------------------
    Total current assets ................................................         530              612
Net property, plant and equipment .......................................       1,223            1,262
Goodwill, less accumulated amortization of $86 in 2001 and $79 in 2000...         191              198
Notes receivable from SSCC ..............................................         499              439
Other assets ............................................................         101              156
                                                                              --------------------------
                                                                             $  2,544         $  2,667
========================================================================================================
Liabilities and Stockholder's Equity (Deficit)

Current liabilities
  Current maturities of long-term debt ..................................    $    150         $     10
  Accounts payable ......................................................         226              312
  Accrued compensation and payroll taxes ................................          81               88
  Interest payable ......................................................          19               27
  Deferred income taxes .................................................           4
  Other current liabilities .............................................          62               71
                                                                              --------------------------
    Total current liabilities ...........................................         542              508
Long-term debt, less current maturities .................................       1,277            1,519
Other long-term liabilities .............................................         264              236
Deferred income taxes ...................................................         505              488
Stockholder's equity (deficit)
  Common stock, par value $.01 per share; 1,000
    shares authorized, issued and outstanding ...........................
  Additional paid-in capital ............................................       1,129            1,129
  Retained earnings (deficit) ...........................................      (1,113)          (1,213)
  Accumulated other comprehensive income (loss) .........................         (60)
                                                                              --------------------------
    Total stockholder's equity (deficit) ................................         (44)             (84)
                                                                              --------------------------
                                                                             $  2,544         $  2,667
========================================================================================================
See notes to consolidated financial statements.
</TABLE>

                                     24

<PAGE>

                                      JSCE, INC.
                       CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Year Ended December 31,  (In millions)                                          2001               2000              1999
==========================================================================================================================
<S>                                                                         <C>               <C>               <C>
Net sales ................................................................  $   3,466         $   3,867         $   3,413
Costs and expenses
  Cost of goods sold .....................................................      2,935             3,250             2,871
  Selling and administrative expenses ....................................        285               275               307
  Restructuring charges ..................................................          4                                   9
  Gain on sale of assets .................................................         (1)               (4)             (407)
                                                                             ---------------------------------------------
    Income from operations ...............................................        243               346               633
Other income (expense)
  Interest expense, net ..................................................        (60)             (103)             (175)
  Other, net .............................................................          3                 2                 4
                                                                             ---------------------------------------------
    Income from continuing operations before
      income taxes and extraordinary item ................................        186               245               462
Provision for income taxes ...............................................        (76)              (99)             (186)
                                                                             ---------------------------------------------
    Income from continuing operations before extraordinary item ..........        110               146               276
Discontinued operations
  Income from discontinued operations net of income taxes of $1...........                                              2
  Gain on disposition of discontinued operations
    net of income taxes of $4 in 2000 and $2 in 1999 .....................                            6                 4
                                                                             ---------------------------------------------
      Income before extraordinary item ...................................        110               152               282
Extraordinary item
  Loss from early extinguishment of debt, net of income
    tax benefit of $2 in 2001, $0 in 2000 and $6 in 1999 .................         (2)               (1)              (10)
                                                                             ---------------------------------------------
  Net income .............................................................  $     108         $     151         $     272
==========================================================================================================================
See notes to consolidated financial statements.
</TABLE>

                                    25

<PAGE>

                                      JSCE, INC.
                CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)

<TABLE>
<CAPTION>

(In millions, except share data)
================================================================================================================================
                                                            Common Stock
                                                           --------------                               Accumulated
                                                           Number    Par      Additional  Retained         Other
                                                             of     Value,     Paid-In    Earnings     Comprehensive
                                                           Shares    $.01      Capital    (Deficit)    Income (Loss)     Total
                                                             -------------------------------------------------------------------
<S>                                                        <C>      <C>       <C>         <C>          <C>               <C>
Balance at January 1, 1999 ..............................   1,000    $        $ 1,102     $  (1,636)       $ (4)         $ (538)
Comprehensive income
  Net income ............................................                                       272                         272
  Other comprehensive income
    Minimum pension liability adjustment,
      net of tax of $3 ..................................                                                     4               4
                                                                                                                         -------
        Comprehensive income ............................                                                                   276
SSCC stock option exercises .............................                          26                                        26
SSCC capital contribution ...............................                           1                                         1
                                                            --------------------------------------------------------------------
Balance at December 31, 1999 ............................   1,000               1,129        (1,364)                       (235)

Comprehensive income
  Net income ............................................                                       151                         151
                                                                                                                         -------
        Comprehensive income ............................                                                                   151
                                                            --------------------------------------------------------------------
Balance at December 31, 2000 ............................   1,000               1,129        (1,213)                        (84)

Comprehensive income (loss)
  Net income ............................................                                       108                         108
  Other comprehensive income (loss)
    Minimum pension liability adjustment,
      net of tax of $(36)................................                                                   (56)            (56)
    Cumulative effect of accounting change,
      net of tax of $2...................................                                                     2               2
    Deferred hedge loss, net of tax of $(4) .............                                                    (6)             (6)
                                                                                                                         -------
        Comprehensive income (loss) .....................                                                                    48
Dividends paid ..........................................                                        (8)                         (8)
                                                            --------------------------------------------------------------------
Balance at December 31, 2001 ............................   1,000    $        $ 1,129     $  (1,113)       $(60)         $  (44)
================================================================================================================================
See notes to consolidated financial statements.
</TABLE>

                                    26

<PAGE>

                                      JSCE, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,  (In millions)                                              2001             2000             1999
============================================================================================================================
<S>                                                                               <C>             <C>              <C>
Cash flows from operating activities
Net income....................................................................... $  108          $   151          $   272
Adjustments to reconcile net income to net cash provided by operating activities
    Gain on disposition of discontinued operations...............................                     (10)              (2)
    Extraordinary loss from early extinguishment of debt.........................      4                1               16
    Depreciation, depletion and amortization.....................................    124              120              134
    Amortization of deferred debt issuance costs.................................      5                7               10
    Deferred income taxes........................................................     66              104              154
    Gain on sale of assets.......................................................     (1)              (4)            (407)
    Non-cash restructuring charges...............................................      2                                 4
    Non-cash interest income from SSCC...........................................    (65)             (53)             (48)
    Change in current assets and liabilities
      Receivables................................................................     22               54             (100)
      Inventories................................................................     30               17              (15)
      Prepaid expenses and other current assets..................................      9                2              (13)
      Accounts payable and accrued liabilities...................................   (106)            (117)              64
      Interest payable...........................................................     (9)              (6)               2
      Income taxes...............................................................      2               (3)              12
    Other, net...................................................................     (8)             (16)              20
                                                                                 -------------------------------------------
  Net cash provided by operating activities......................................    183              247              103
                                                                                 -------------------------------------------
Cash flows from investing activities
  Expenditures for property, plant and equipment.................................    (86)            (116)             (69)
  Notes receivable from SSCC.....................................................      5              (21)              25
  Proceeds from property and timberland disposals and sale of businesses.........      6                8              873
                                                                                 -------------------------------------------
  Net cash provided by (used for) investing activities...........................    (75)            (129)             829
                                                                                 -------------------------------------------
Cash flows from financing activities
  Proceeds from long-term debt...................................................    275
  Net borrowings (repayments) under the accounts
    receivable securitization program............................................    (27)               3               15
  Net repayments of debt.........................................................   (354)            (111)            (954)
  Dividends paid.................................................................     (8)
  Deferred debt issuance costs...................................................     (4)
                                                                                 -------------------------------------------
  Net cash used for financing activities.........................................   (118)            (108)            (939)
                                                                                 -------------------------------------------
Increase (decrease) in cash and cash equivalents.................................    (10)              10               (7)
Cash and cash equivalents
  Beginning of year..............................................................     21               11               18
                                                                                 -------------------------------------------
  End of year.................................................................... $   11           $   21           $   11
============================================================================================================================
See notes to consolidated financial statements.
</TABLE>

                                      27

<PAGE>

                                   JSCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          (Tabular amounts in millions)

1.   SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation: JSCE, Inc., hereafter referred to as the "Company," is a
wholly owned subsidiary of Smurfit-Stone Container Corporation ("SSCC"). On
November 18, 1998, a subsidiary of SSCC was merged with Stone Container
Corporation ("Stone"), an action hereafter referred to as the "Merger," and
Stone became a subsidiary of SSCC. The Company owns 100% of the equity interest
in Jefferson Smurfit Corporation (U.S.) ("JSC(U.S.)") and is a guarantor of the
senior unsecured indebtedness of JSC(U.S.). The Company has no operations other
than its investment in JSC(U.S.). JSC(U.S.) has extensive operations throughout
the United States.

Nature of Operations: The Company's major operations are in containerboard and
corrugated containers, consumer packaging, specialty packaging and reclaimed
fiber resources. The Company's paperboard mills procure virgin and reclaimed
fiber and produce paperboard for conversion into corrugated containers, folding
cartons and industrial packaging at Company-owned facilities and third-party
converting operations. Paper product customers represent a diverse range of
industries including paperboard and paperboard packaging, wholesale trade,
retailing and agri-business. Recycling operations collect or broker wastepaper
for sale to Company-owned and third-party paper mills. Customers and operations
are principally located in the United States. Credit is extended to customers
based on an evaluation of their financial condition.

Principles of Consolidation: The consolidated financial statements include the
accounts of the Company and majority-owned and controlled subsidiaries.
Significant intercompany accounts and transactions are eliminated in
consolidation.

Cash and Cash Equivalents: The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents. Cash
and cash equivalents of $9 million and $18 million were pledged at December 31,
2001 and 2000, as collateral for obligations associated with the accounts
receivable securitization program (See Note 5).

Revenue Recognition: The Company recognizes revenue at the time persuasive
evidence of an agreement exists, price is fixed and determinable, products are
shipped to external customers and collectibility is reasonably assured.
Shipping and handling costs are included in cost of goods sold.

Inventories: Inventories are valued at the lower of cost or market under the
last-in, first-out ("LIFO") method, except for $34 million in 2001 and $39
million in 2000, which are valued at the lower of average cost or market.
First-in, first-out ("FIFO") costs (which approximate replacement costs) exceed
the LIFO value by $60 million and $65 million at December 31, 2001 and 2000,
respectively.

Net Property, Plant and Equipment: Property, plant and equipment are carried at
cost. The costs of additions, improvements and major replacements are
capitalized, while maintenance and repairs are charged to expense as incurred.
Provisions for depreciation and amortization are made using straight-line rates
over the estimated useful lives of the related assets and the terms of the
applicable leases for leasehold improvements. Estimated useful lives of paper
machines average 23 years, while major converting equipment and folding carton
presses have an estimated useful life ranging from 12 to 20 years.

Goodwill: The excess of cost over the fair value assigned to the net assets
acquired is recorded as goodwill and is being amortized using the straight-line
method over 40 years (See Prospective Accounting Pronouncements).

                                       28

<PAGE>

Deferred Debt Issuance Costs: Deferred debt issuance costs included in other
assets are amortized over the terms of the respective debt obligations using
the interest method.

Long-Lived Assets: In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed of," long-lived assets held and used
by the Company and the related goodwill are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable.

Income Taxes: The Company accounts for income taxes in accordance with the
liability method of accounting for income taxes. Under the liability method,
deferred assets and liabilities are recognized based upon anticipated future
tax consequences attributable to differences between financial statement
carrying amounts of assets and liabilities and their respective tax bases (See
Note 8).

Derivative Instruments and Hedging Activities: In June 1998, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 133, as amended by SFAS No.
138, "Accounting for Derivative Instruments and Hedging Activities," which was
adopted by the Company, January 1, 2001. The Company recognizes all derivatives
on the balance sheet at fair value. Derivatives that are not hedges are
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of derivatives are either
offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value is immediately recognized in earnings (See
Note 6).

Transfers of Financial Assets: The Company accounts for transfers of financial
assets in accordance with SFAS No. 140, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." Accordingly, financial
assets transferred to qualifying special purpose entities and the liabilities
of such entities are not reflected in the consolidated financial statements of
the Company. Gain or loss on sale of financial assets depends in part on the
previous carrying amount of the financial assets involved in the transfer,
allocated between the assets sold and the retained interests based on their
relative fair value at the date of transfer. Quoted market prices are generally
not available for retained interests, so the Company generally estimates fair
value based on the present value of expected cash flows estimated by using
management's best estimates of key assumptions (See Note 4).

Stock-Based Compensation: The Company's employees participate in SSCC's
stock-based plans. The Company accounts for stock-based plans in accordance
with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. Under APB No. 25, because
the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized for stock options. The Company has adopted the disclosure-only
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation."

Amounts earned under the Company's annual management incentive plan, which are
deferred and paid in the form of SSCC Restricted Stock Units ("RSUs"),
immediately vest and are expensed by the Company in the year earned. RSUs
related to the Company matching program are expensed over the vesting period
(See Note 11).

Environmental Matters: The Company expenses environmental expenditures related
to existing conditions resulting from past or current operations from which no
current or future benefit is discernible. Expenditures that extend the life of
the related property or mitigate or prevent future environmental contamination
are capitalized. Reserves for environmental liabilities are established in
accordance with the American Institute of Certified Public Accountants
Statement of Position 96-1, "Environmental Remediation Liabilities." The
Company records a liability at the time when it is probable and can be
reasonably estimated. Such liabilities are not discounted or reduced for
potential recoveries from insurance carriers.

                                       29

<PAGE>

Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Reclassifications: Certain reclassifications of prior year presentations have
been made to conform to the 2001 presentation. Gain on sale of assets, relating
to assets utilized in operations, has been reclassified from other, net to a
separate component of operating income in the consolidated statements of
operations.

Prospective Accounting Pronouncements: In June 2001, the FASB issued SFAS No.
142, "Goodwill and Other Intangible Assets," effective for fiscal years
beginning after December 15, 2001. Goodwill and intangible assets deemed to
have indefinite lives will no longer be amortized, but will be subject to an
annual impairment test. Other intangible assets will continue to be amortized
over their useful lives.

The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
non-amortization provision of the statement is expected to result in an
increase in net income of approximately $7 million per year. During 2002, the
Company will perform the first of the required impairment tests of goodwill as
of January 1, 2002. The Company has not yet determined what the effect of these
tests will be on its earnings and financial position.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 establishes accounting standards for the recognition
and measurement of an asset retirement obligation and its associated asset
retirement cost. It also provides accounting guidance for legal obligations
associated with the retirement of tangible long-lived assets. This statement is
effective for fiscal years beginning after June 15, 2002. The Company is
currently assessing the impact of this new standard.

In July 2001, the FASB issued SFAS No. 144, "Impairment or Disposal of
Long-Lived Assets," which is effective for fiscal years beginning after
December 15, 2001. The provisions of this statement provide a single accounting
model for impairment of long-lived assets, including discontinued operations.
The impact of this new standard is not expected to be material.

2.   RESTRUCTURINGS

During 1998, the Company recorded a restructuring charge related to the
permanent shutdown of certain containerboard mill operations and related
facilities formerly operated by JSC(U.S.), the termination of certain JSC(U.S.)
employees and liabilities for lease commitments at the closed JSC(U.S.)
facilities.

During 1999, the Company permanently closed eight additional facilities, which
resulted in approximately 400 employees being terminated. A $14 million
restructuring charge was recorded related to these closures. The sales and
operating loss of these facilities in 1999 prior to closure were $32 million
and $7 million, respectively. The 1999 adjustments include a reduction to 1998
exit liabilities of $5 million and a reclassification of pension liabilities of
$12 million.

During 2001, the Company recorded a restructuring charge of $4 million related
to the closure of a boxboard paper machine and related operation and the
shutdown of a trucking operation. The assets of these closed operations were
adjusted to their estimated fair value less cost to sell resulting in a $2
million non-cash write down. These shutdowns resulted in approximately 75
employees being terminated. The sales and operating losses of these facilities
in 2001 prior to closure were $4 million and $2 million, respectively.

                                       30

<PAGE>

The following is a summary of the restructuring liabilities recorded:

<TABLE>
<CAPTION>
                       Write-down of
                       Property and                 Lease     Pension    Facility
                       Equipment to                Commit-    Curtail-   Closure
                        Fair Value      Severance   ments      ments      Costs    Other   Total
                      ----------------------------------------------------------------------------
<S>                         <C>           <C>       <C>        <C>        <C>      <C>     <C>
Balance at
January 1, 1999.....         $            $ 24      $ 20       $  9       $ 10     $ 8     $ 71

  Charge............            4            4                    3          1       2       14
  Payments..........                       (26)       (3)                   (3)     (3)     (35)
  Adjustments.......           (4)                              (12)                (5)     (21)
                      ----------------------------------------------------------------------------
Balance at
December 31, 1999...                         2        17                     8       2       29

  Payments..........                        (2)       (3)                           (1)      (6)
                      ----------------------------------------------------------------------------
Balance at
December 31, 2000...                                  14                     8       1       23

  Charge............            2            1                               1                4
  Payments..........                        (1)       (2)                   (1)     (1)      (5)
  Adjustments.......           (2)                                                           (2)
                      ----------------------------------------------------------------------------
Balance at
December 31, 2001...         $            $         $ 12       $          $  8     $       $ 20
                      ----------------------------------------------------------------------------
</TABLE>

Future cash outlays are anticipated to be $4 million in 2002, $2 million in
2003, $2 million in 2004, and $12 million thereafter.

3.   NET PROPERTY, PLANT AND EQUIPMENT

Net property, plant and equipment at December 31 consists of:

                                                           2001          2000
                                                       ------------------------
Land...................................................  $   54        $   52
Buildings and leasehold improvements...................     254           245
Machinery, fixtures and equipment......................   1,845         1,788
Construction in progress...............................      36            52
                                                       ------------------------
                                                          2,189         2,137
Less accumulated depreciation and amortization.........    (966)         (875)
                                                       ------------------------
Net property, plant and equipment......................  $1,223        $1,262
                                                       ------------------------

Depreciation and depletion expense was $117 million, $113 million and $127
million for 2001, 2000 and 1999, respectively. Property, plant and equipment
include capitalized leases of $53 million and $57 million and related
accumulated amortization of $38 million and $36 million at December 31, 2001
and 2000, respectively.

                                       31

<PAGE>

4.   TIMBERLAND SALE AND NOTE MONETIZATION

The Company sold approximately 980,000 acres of owned and leased timberland in
Florida, Georgia and Alabama in October 1999. The final purchase price, after
adjustments, was $710 million. The Company received $225 million in cash, with
the balance of $485 million in the form of installment notes.

The Company entered into a program to monetize the installment notes
receivable. The notes were sold without recourse to Timber Notes Holdings, a
qualified special purpose entity under the provisions of SFAS No. 140, for $430
million cash proceeds and a residual interest in the notes. The transaction has
been accounted for as a sale under SFAS No. 140. The cash proceeds from the
sale and the monetization transactions were used to prepay borrowings under the
JSC(U.S.) Credit Agreement. The residual interest included in other assets was
$40 million and $37 million at December 31, 2001 and 2000, respectively. The
key economic assumption used in measuring the residual interest at the date of
the monetization was the rate at which the residual cash flows were discounted
(9%). At December 31, 2001, the sensitivity on the current fair value of the
residual cash flows to immediate 10% and 20% adverse changes in the assumed
rate at which residual cash flows were discounted (9%) was $2 million and $4
million, respectively.

The gain of $407 million on the timberland sale and the related note
monetization program is included in gain on sale of assets in the 1999
consolidated statement of operations.

5.   LONG-TERM DEBT

Long-term debt as of December 31 is as follows:

                                                                2001    2000
                                                              -----------------
Bank Credit Facilities
Tranche A Term Loan (3.6% weighted average variable rate),
  payable in various installments through March 31, 2005...   $  250  $  275
Tranche B Term Loan (4.1% weighted average variable rate),
  payable in various installments through March 31, 2007...      275      65
Revolving Credit Facility (5.3% weighted average
  variable rate), due March 31, 2005.......................       48      17

Accounts Receivable Securitization Program Borrowings
Accounts receivable securitization program borrowings (2.2%
  weighted average variable rate), $15 million term loan
  due in February 2002, other due in February 2004.........      201     227

Senior Unsecured Notes
11.25% Series A unsecured senior notes, due May 1, 2004....              287
10.75% Series B unsecured senior notes, due May 1, 2002....      100     100
9.75% Senior Notes, due April 1, 2003......................      500     500

Other Debt
Other (including obligations under capitalized leases
  of $19 million and $27 million).......................          53      58
                                                             -----------------
Total debt.................................................    1,427   1,529
Less current maturities....................................     (150)    (10)
                                                             -----------------
Long-term debt.............................................   $1,277  $1,519
                                                             -----------------

                                       32

<PAGE>

The amounts of total debt outstanding at December 31, 2001 maturing during the
next five years are as follows

2002..............  $ 150
2003..............    746
2004..............     78
2005..............    151
2006..............    146
Thereafter........    156

BANK CREDIT FACILITIES
JSC(U.S.) has a bank credit facility (the "JSC(U.S.) Credit Agreement")
consisting of a $550 million revolving credit facility ("Revolving Credit
Facility") of which up to $150 million may consist of letters of credit, and
two senior secured term loans (Tranche A and Tranche B) aggregating $525
million at December 31, 2001. A commitment fee of 0.375% per annum is assessed
on the unused portion of the Revolving Credit Facility. at december 31, 2001,
the unused portion of this facility, after giving consideration to outstanding
letters of credit, was $437 million.

In January 2002, JSC(U.S.) obtained a waiver and an amendment from its lender
group for relief from certain financial covenant requirements under the
JSC(U.S.) Credit Agreement as of December 31, 2001. The amendment eased certain
quarterly financial covenant requirements as of December 31, 2001 and for
future periods.

On January 5, 2001, JSC(U.S.) prepaid the remaining $65 million Tranche B term
loan. On April 27, 2001, JSC(U.S.) and its bank group amended the JSC(U.S.)
Credit Agreement to allow for a new $275 million Tranche B term loan. The
proceeds along with additional borrowings under the Revolving Credit Facility
were used solely to redeem in full the 11.25% senior unsecured notes,
aggregating $287 million, and to pay any fees and expenses incurred in relation
to the repurchase. In the fourth quarter of 2001, JSC(U.S.) prepaid $25 million
of Tranche A term loan. An extraordinary loss of $2 million (net of tax of $2
million) was recorded due to the early extinguishment of debt in 2001.

During 1999, the proceeds from the timberland sale and the Newberg newsprint
mill sale were used to reduce the balance of the Tranche A and Tranche B term
loans. The write-off of related deferred debt issuance costs, totaling $10
million (net of income tax benefits of $6 million), is reflected in the
accompanying consolidated statements of operations as an extraordinary item.

The JSC(U.S.) Credit Agreement contains various covenants and restrictions
including, among other things, (i) limitations on dividends, redemptions and
repurchases of capital stock, (ii) limitations on the incurrence of
indebtedness, liens, leases and sale-leaseback transactions, (iii) limitations
on capital expenditures, and (iv) maintenance of certain financial covenants.
The JSC(U.S.) Credit Agreement also requires prepayments if JSC(U.S.) has
excess cash flows, as defined, or receives proceeds from certain asset sales,
insurance or incurrence of certain indebtedness. As a result of excess cash
flow in 2000, JSC(U.S.) was required to make a $59 million prepayment on the
Tranche A term loan prior to March 31, 2001. However, on March 28, 2001,
JSC(U.S.) received approval of an amendment to the JSC(U.S.) Credit Agreement
which waived the mandatory excess cash flow payment.

The obligations under the JSC(U.S.) Credit Agreement are unconditionally
guaranteed by SSCC, the Company and its subsidiaries and are secured by a
security interest in substantially all of the assets of JSC(U.S.) and its
material subsidiaries, with the exception of cash, cash equivalents and trade
receivables. The JSC(U.S.) Credit Agreement is also secured by a pledge of all
the capital stock of the Company and each of its material subsidiaries and by
certain intercompany notes.

                                     33

<PAGE>

ACCOUNTS RECEIVABLE SECURITIZATION PROGRAM BORROWINGS
JSC(U.S.) currently has a $229 million accounts receivable securitization
program (the "Securitization Program"). On March 9, 2001, the previous
Securitization Program was amended to (i) reduce the borrowings available
through the issuance of commercial paper or under the Revolving Credit Facility
from $300 million to $214 million and (ii) extend the final maturity on these
borrowings from February 2002 to February 2004. A $15 million term loan was
also outstanding as of December 31, 2001. The $15 million term loan was repaid
in February 2002.

The Securitization Program provides for the sale of certain of the Company's
trade receivables to a wholly owned, bankruptcy remote, limited purpose
subsidiary, Jefferson Smurfit Finance Corporation ("JS Finance"). The accounts
receivable purchases are financed through the issuance of commercial paper or
through borrowings under a revolving credit facility and a $15 million term
loan. Under the Securitization Program, JS Finance has granted a security
interest in all its assets, principally cash and cash equivalents and trade
accounts receivable. The Company has $28 million available for additional
borrowing at December 31, 2001, subject to eligible accounts receivable.
Commercial paper borrowings under the program have been classified as long-term
debt because of the Company's intent to refinance this debt on a long-term
basis and the availability of such financing under the terms of the program.

SENIOR UNSECURED NOTES
The 10.75% Series B unsecured senior notes and the 9.75% Senior Notes are not
redeemable prior to maturity. Holders of the JSC(U.S.) Senior Notes have the
right, subject to certain limitations, to require JSC(U.S.) to repurchase their
securities at 101% of the principal amount plus accrued and unpaid interest,
upon the occurrence of a change in control or, in certain events, from proceeds
of major asset sales, as defined.

The Senior Notes, which are unconditionally guaranteed on a senior basis by the
Company, rank pari passu with the JSC(U.S.) Credit Agreement and contain
business and financial covenants which are less restrictive than those
contained in the JSC(U.S.) Credit Agreement.

OTHER
Interest costs capitalized on construction projects in 2001, 2000, and 1999
totaled $2 million, $4 million, and $3 million, respectively. Interest payments
on all debt instruments for 2001, 2000, and 1999 were $130 million, $157
million, and $214 million, respectively.

6. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities",
as amended by SFAS No. 137 and SFAS No. 138 requires that all derivatives be
recorded on the consolidated balance sheets at fair value. Changes in the fair
value of derivatives not qualifying as hedges are recorded each period in
earnings. Changes in the fair value of derivatives qualifying as hedges are
either offset against the change in fair value of the hedged item through
earnings or recognized in Other Comprehensive Income ("OCI") until the hedged
item is recognized in earnings, depending on the nature of the hedge. The
ineffective portion of the change in fair value of all derivatives is
recognized in earnings. Hedges related to anticipated transactions are
designated and documented at hedge inception as cash flow hedges and evaluated
for hedge effectiveness quarterly.

In 2001, upon adoption of SFAS No. 133, the Company recorded a cumulative effect
of an accounting change gain of approximately $2 million (net of tax of $2
million) in OCI.

The Company's derivative instruments and hedging activities relate to
minimizing exposures to fluctuations in the price of commodities used in its
operations and are designated as cash flow hedges.

                                     34

<PAGE>

COMMODITY FUTURES CONTRACTS
The Company uses exchange traded futures contracts to manage fluctuations in
cash flows resulting from commodity price risk in the procurement of natural
gas. The objective is to fix the price of a portion of the Company's forecasted
purchases of natural gas used in the manufacturing process. The changes in the
market value of such contracts have historically been, and are expected to
continue to be, highly effective at offsetting changes in price of the hedged
item. As of December 31, 2001, the maximum length of time over which the
Company is hedging its exposure to the variability in future cash flows
associated with natural gas forecasted transactions is approximately one year.
For the year ended December 31, 2001, the Company reclassified a $2 million
loss from OCI to cost of goods sold when the hedged items were recognized. The
fair value of the Company's futures contracts at December 31, 2001 is a $6
million loss included in other current liabilities.

For the year ended December 31, 2001, the Company recorded a $3 million loss in
cost of goods sold on settled commodity futures contracts, related to the
ineffective portion of hedges and contracts not qualifying as hedges.

The cumulative deferred hedge loss is $4 million (net of tax of $2 million) at
December 31, 2001. The Company expects to reclassify $4 million into cost of
goods sold during 2002.

7. LEASES

The Company leases certain facilities and equipment for production, selling and
administrative purposes under operating leases. Future minimum rental
commitments (exclusive of real estate taxes and other expense) under operating
leases having initial or remaining noncancelable terms in excess of one year,
excluding lease commitments on closed facilities, are reflected below:

2002..............................  $ 36
2003..............................    30
2004..............................    26
2005..............................    21
2006..............................    15
Thereafter........................    28
                                    -----
 Total minimum lease payments.....  $156
                                    -----

Net rental expense for operating leases, including leases having a duration of
less than one year, was approximately $53 million, $49 million and $50 million
for 2001, 2000 and 1999, respectively.

                                     35

<PAGE>

8. INCOME TAXES

Significant components of the Company's deferred tax assets and liabilities at
December 31 are as follows:

                                                               2001     2000
                                                              ---------------
Deferred tax liabilities
 Property, plant and equipment and timberland...............  $(374)   $(404)
 Inventory..................................................    (28)     (27)
 Timber installment sale....................................   (134)    (129)
 Other......................................................   (125)    (109)
                                                              ---------------
 Total deferred tax liabilities.............................   (661)    (669)
                                                              ---------------

Deferred tax assets
 Employee benefit plans.....................................     49       50
 Net operating loss, alternative minimum tax and tax credit
  carryforwards.............................................     62       79
 Restructuring..............................................     11        7
 Other......................................................     40       60
                                                              ---------------
 Total deferred tax assets..................................    162      196
 Valuation allowance for deferred tax assets................    (10)     (10)
                                                              ---------------
 Net deferred tax assets....................................    152      186
                                                              ---------------
 Net deferred tax liabilities...............................  $(509)   $(483)
                                                              ---------------

At December 31, 2001, the Company had net operating loss carryforwards for
state purposes with a tax value of $20 million, which expire from 2002 through
2020. A valuation allowance of $10 million has been established for a portion
of these deferred tax assets. The Company had approximately $42 million of
alternative minimum tax credit carryforwards for U.S. federal income tax
purposes, which are available indefinitely.

Provision for income taxes on income from continuing operations before income
taxes and extraordinary item is as follows:

                                            2001    2000    1999
                                           ----------------------
Current
 Federal.................................   $(45)   $ (6)  $ (10)
 State and local.........................     (6)     (1)
                                           ----------------------
 Total current expense...................    (51)     (7)    (10)

Deferred
 Federal.................................    (20)    (78)   (147)
 State and local.........................     (5)    (14)    (29)
                                           ----------------------
 Total deferred expense..................    (25)    (92)   (176)

                                           ----------------------
 Total provision for income taxes........   $(76)   $(99)  $(186)
                                           ----------------------

                                     36

<PAGE>

The Company's provision for income taxes differed from the amount computed by
applying the statutory U.S. federal income tax rate to income from continuing
operations before income taxes and extraordinary item as follows:

<TABLE>
<CAPTION>
                                                                          2001    2000    1999
                                                                          --------------------
<S>                                                                       <C>     <C>    <C>
U.S. federal income tax provision at federal statutory rate.........      $(65)   $(86)  $(162)
Permanent differences from applying purchase accounting.............        (2)     (2)     (3)
Other permanent differences.........................................        (1)     (1)     (2)
State income taxes, net of federal income tax effect................        (8)    (10)    (19)
                                                                          ---------------------
Total provision for income taxes....................................      $(76)   $(99)  $(186)
                                                                          ---------------------
</TABLE>

The Internal Revenue Service has examined the Company's tax returns for all
years through 1994, and the years have been closed through 1988. The years 1995
through 1998 are currently under examination. While the ultimate results of
such examination cannot be predicted with certainty, the Company's management
believes that the examination will not have a material adverse effect on its
consolidated financial condition or results of operations.

The Company made income tax payments of $8 million, $30 million and $33 million
in 2001, 2000 and 1999, respectively

9. EMPLOYEE BENEFIT PLANS

DEFINED BENEFIT PLANS
The Company participates in the SSCC sponsored noncontributory defined benefit
pension plans covering substantially all employees. On December 31, 1998, the
defined benefit plans of the Company were merged with the domestic defined
benefit plans of Stone, and the assets of these plans are available to meet the
funding requirements of the combined plans. The Company intends to fund its
proportionate share of the future contributions based on the funded status of
the Company's plan determined on an actuarial basis. Therefore, the plan asset
information provided below is based on an actuarial estimate of assets and
liabilities, excluding the effect of the plan merger, in order to be consistent
with the presentation of the consolidated statements of operations and the
consolidated balance sheets.

The benefit obligation, fair value of plan assets and the under funded status
of the Stone domestic merged defined benefit plans at December 31, 2001 were
$736 million, $425 million and $311 million, respectively.

Approximately 42% of SSCC's domestic pension plan assets at December 31, 2001
are invested in cash equivalents or debt securities, and 58% are invested in
equity securities. Equity securities at December 31, 2001 include 0.7 million
shares of SSCC common stock with a market value of approximately $12 million
and 26 million shares of Jefferson Smurfit Group plc ("JS Group") common stock
having a market value of approximately $57 million. Dividends paid on JS Group
common stock during 2001 and 2000 were approximately $2 million in each year.

                                     37

<PAGE>

POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
The Company provides certain health care and life insurance benefits for all
salaried as well as certain hourly employees. The assumed health care cost
trend rate used in measuring the accumulated postretirement benefit obligation
("APBO") was 12% at December 31, 2001, decreasing to the ultimate rate of
5.00%. The effect of a 1% change in the assumed health care cost trend rate
would increase/(decrease) the APBO as of December 31, 2001 by $3 million and
have an immaterial effect on the annual net periodic postretirement benefit
cost for 2001.

The following provides a reconciliation of benefit obligations, plan assets,
and funded status of the plans:

<TABLE>
<CAPTION>
                                                  Defined Benefit     Postretirement
                                                       Plans               Plans
                                              ----------------------  ----------------
                                                    2001       2000     2001    2000
                                              ----------------------  ----------------
<S>                                               <C>        <C>       <C>     <C>
Change in benefit obligation:
Benefit obligation at January 1...............    $ 1,052    $  957    $  96   $ 94
Service cost..................................         20        18        1      1
Interest cost.................................         77        75        7      7
Amendments....................................          6         4       (2)
Plan participants' contributions..............                             6      4
Curtailments..................................                   (1)             (2)
Actuarial loss................................         29        63       10      9
Benefits paid.................................        (68)      (64)     (19)   (17)
                                                 --------------------  ---------------
Benefit obligation at December 31.............    $ 1,116    $1,052    $  99   $ 96
                                                 --------------------  ---------------
Change in plan assets:
Fair value of plan assets at January 1........    $ 1,073    $1,155    $       $
Actual return on plan assets..................        (23)      (19)
Employer contributions........................          2         1       13     13
Plan participants' contributions..............                             6      4
Benefits paid.................................        (68)      (64)     (19)   (17)
                                                 --------------------  ---------------
Fair value of plan assets at December 31......    $   984    $1,073    $       $
                                                 --------------------  ---------------

Over (under) funded status:                       $  (132)   $   21    $ (99)  $(96)
Unrecognized actuarial loss...................        158         2       13      4
Unrecognized prior service cost...............         38        36       (2)    (1)
Net transition asset..........................                   (1)
                                                 --------------------  ---------------
Net amount recognized.........................    $    64    $   58    $ (88)  $(93)
                                                 --------------------  ---------------
Amounts recognized in the balance sheets:
Prepaid benefit cost..........................    $          $   88    $       $
Accrued benefit liability.....................        (66)      (32)     (88)   (93)
Accumulated other comprehensive (income) loss.         92
Intangible asset..............................         38         2
                                                 --------------------  ---------------
Net amount recognized.........................    $    64    $   58    $ (88)  $(93)
                                                 --------------------  ---------------
</TABLE>

                                      38

<PAGE>

The weighted average assumptions used in the accounting for the defined benefit
plans and postretirement plans were:

<TABLE>
<CAPTION>
                                                      Defined Benefit       Postretirement
                                                           Plans                Plans
                                                     ----------------    ---------------------
                                                       2001     2000       2001        2000
                                                     ----------------    ---------------------
<S>                                                   <C>       <C>       <C>         <C>
Weighted average discount rate......................  7.25%     7.50%      7.25%      7.50%
Rate of compensation increase.......................  4.00%     4.00%        N/A        N/A
Expected return on assets...........................  9.50%     9.50%        N/A        N/A
Health care cost trend on covered charges ..........    N/A       N/A      12.0%      5.25%
</TABLE>

The components of net pension expense for the defined benefit plans and the
components of the postretirement benefit costs follow:

<TABLE>
<CAPTION>
                                                Defined Benefit          Postretirement
                                                     Plans                   Plans
                                           ------------------------- ---------------------
                                            2001      2000     1999   2001    2000    1999
                                           ------------------------- ---------------------
<S>                                         <C>       <C>      <C>    <C>    <C>      <C>
Service cost..............................  $  20     $ 22     $ 26    $1      $      $1
Interest cost ............................     77       75       69     7       7      7
Expected return on plan assets............   (103)     (99)     (91)
Net amortization and deferral.............      4       (4)      (4)
Recognized actuarial loss (gain) .........     (2)      (8)       4
Curtailment cost..........................                        6
                                            ------------------------ ----------------------
Net periodic benefit cost.................  $  (4)    $(14)    $ 10    $8      $7     $8
                                            ------------------------ ----------------------
</TABLE>

The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $1,116 million, $1,050 million and $984 million,
respectively, as of December 31, 2001 and $35 million, $32 million and zero as
of December 31, 2000.

SAVINGS PLANS

The Company sponsors voluntary savings plans covering substantially all
salaried and certain hourly employees. The Company match is paid in SSCC common
stock, up to an annual maximum. The Company's expense for the savings plans
totaled $10 million, $9 million and $9 million in 2001, 2000 and 1999,
respectively.

10.  DISCONTINUED OPERATIONS

During February 1999, the Company adopted a formal plan to sell the operating
assets of its subsidiary, Smurfit Newsprint Corporation ("SNC"). Accordingly,
SNC was accounted for as a discontinued operation. SNC consisted of two
newsprint mills in Oregon. In November 1999, the Company sold its Newberg,
Oregon, newsprint mill for proceeds of approximately $211 million. Net gain on
disposition of discontinued operations of $4 million in 1999 included the
realized gain on the sale of the Newberg, Oregon newsprint mill, the estimated
loss on the sale of the Oregon City, Oregon, newsprint mill, actual results
from the measurement date through December 31, 1999 and the estimated losses on
the Oregon City, Oregon newsprint mill through the expected disposition date.

On May 9, 2000, the Company transferred ownership of the Oregon City, Oregon,
newsprint mill to a third party thereby completing its exit from the newsprint
business. No proceeds from the transfer were received. During the second
quarter of 2000, the Company recorded a $6 million after tax gain to reflect
adjustments to the previous estimates on disposition of discontinued operations.

                                      39

<PAGE>

SNC revenues were $43 million and $253 million for 2000 and 1999, respectively.

11.  STOCK OPTION AND INCENTIVE PLANS

Prior to the Merger, the Company's parent, SSCC, maintained the 1992 Jefferson
Smurfit Corporation stock option plan (the "1992 Plan") for selected employees
of the Company. The 1992 Plan included non-qualified stock options, issued at
prices equal to the fair market value of SSCC's common stock at the date of
grant, which expire upon the earlier of twelve years from the date of grant or
termination of employment, death or disability. Effective with the Merger, all
outstanding options became exercisable and fully vested.

In November 1998, SSCC adopted the 1998 Long-term Incentive Plan (the "1998
Plan") and reserved 8.5 million shares of SSCC common stock for non-qualified
stock options and performance awards. In 2001, an additional 8 million shares
of SSCC common stock were reserved. Certain employees of the Company are
covered under the 1998 Plan. The options are exercisable at a price equal to
the fair market value of SSCC's common stock at the date of the grant. The
vesting schedule and other terms and conditions of options granted under the
1998 Plan are established separately for each grant. The number of options that
become vested and exercisable in any one year may not exceed one-third of the
options granted for certain participants and may not exceed one-fourth of the
options granted for other participants. The options expire ten years after the
date of grant.

Certain grants under the 1998 Plan contain change in control provisions which
provide for immediate vesting and exercisability in the event that specific
SSCC ownership conditions are met. These grants also allow for immediate
vesting and exercisability in the event of retirement. These options remain
exercisable until the earlier of five years from retirement or ten years from
the initial grant date. The stock options granted prior to 2001 vest and become
exercisable eight years after the date of grant subject to acceleration based
upon the attainment of pre-established stock price targets. In 2001, the
majority of options granted vest and become exercisable at the rate of 25% each
year for four years.

During 2001, the Company revised its annual management incentive plan so that a
portion of annual employee bonuses is paid in the form of RSUs under the 1998
Plan. The RSUs are non-transferable and do not have voting rights. These RSUs
vest immediately, but the restrictions do not lapse until the third anniversary
of the award date. The Company pays a premium in the form of RSUs ("Premium
RSUs") to certain employees. Premium RSUs vest at the earlier of a change in
control, retirement or three years after the award date. At December 31, 2001,
the Company recorded a liability of $2 million for RSUs to be issued in 2002
for services provided in 2001. The cost of Premium RSUs ($.5 million) will be
amortized over the three year vesting period, beginning in 2002.

The Company and its parent have elected to continue to follow APB Opinion No.
25 to account for stock awards granted to employees. If the Company adopted
SFAS No. 123 to account for stock awards granted to employees, the Company's
net income, based on a Black-Scholes option pricing method, would have been
reduced by $4 million, $3 million and zero for 2001, 2000 and 1999,
respectively. The effects of applying SFAS No. 123 as described above may not
be representative of the effects on reported net income for future years.

During the second quarter of 1999, the Company recorded a $26 million charge in
selling and administrative expenses, related to the cashless exercise of SSCC
stock options under the 1992 Plan. The charge was reflected in the consolidated
financial statements because the options were exercised by JSC(U.S.) employees.
No future stock option expense is expected.

                                     40

<PAGE>

12.  ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income (loss), net of tax is as follows:

<TABLE>
<CAPTION>
                                                                             Accumulated
                                                 Minimum        Deferred       Other
                                                 Pension         Hedge       Comprehensive
                                                 Liability      Gain (Loss)  Income (Loss)
                                               ------------------------------------------
<S>                                             <C>               <C>          <C>
Balance at January 1, 1999 ..................   $   (4)          $             $ (4)
  Current period change .....................        4                            4
                                               ------------------------------------------
Balance at December  31, 1999................
  Current period change .....................
                                               ------------------------------------------
Balance at December 31, 2000.................
  Cumulative effect of accounting change.....                      2               2
  Net changes in fair value of hedging
    transactions ............................                     (8)             (8)
  Net loss reclassified into earnings .......                      2               2
  Current period change......................      (56)                          (56)
                                               ------------------------------------------
Balance at December 31, 2001.................   $  (56)          $(4)          $ (60)
                                               ------------------------------------------
</TABLE>

13.  RELATED PARTY TRANSACTIONS

TRANSACTIONS WITH JS GROUP

Transactions with JS Group, a significant stockholder of SSCC, its subsidiaries
and affiliated companies were as follows:

                                                   2001        2000        1999
                                                  -----------------------------
Product sales ..................................    $32         $49         $33
Product and raw material purchases .............     20          21          16
Management services income......................      2           2           3
Charges from JS Group for services provided.....      1           1           1
Receivables at December 31 .....................      2           3           1
Payables at December 31.........................      6          10          13

Product sales to and purchases from JS Group, its subsidiaries and affiliates
are consummated on terms generally similar to those prevailing with unrelated
parties.

The Company provides certain subsidiaries and affiliates of JS Group with
general management and elective management services under separate Management
Services Agreements. In consideration for general management services, the
Company is paid a fee up to 2% of the subsidiaries' or affiliates' gross sales.
In consideration for elective services, the Company is reimbursed for its
direct cost of providing such services.

                                      41

<PAGE>

TRANSACTIONS WITH STONE
The Company sold and purchased containerboard and recycling products from Stone,
at market prices, as follows:

                                                   2001        2000        1999
                                                   ----------------------------
Product sales .................................    $311        $387        $248
Product and raw material purchases ............     535         422         237
Net receivables at December 31.................      29          24          28

Corporate shared expenses are allocated between the Company and Stone based on
an established formula using a weighted average rate based on net book value of
fixed assets, number of employees and sales. Net receivables are settled in
cash.

TRANSACTIONS WITH SSCC
In connection with the Merger, a $300 million intercompany loan was made to
SSCC, which was contributed to Stone as additional paid-in capital. In
addition, a $36 million intercompany loan was made to SSCC to pay certain
Merger costs. These notes bear interest at the rate of 14.21% per annum, are
payable semi-annually on December 1 and June 1 of each year commencing June 1,
1999, and have a maturity date of November 18, 2004.

On November 15, 2000, pursuant to an Agreement and Plan of Merger among SSCC,
SCC Merger Co. and Stone, approximately 4.6 million shares of $1.75 Series E
Preferred Stock of Stone (the "Stone Preferred Stock") were converted into
approximately 4.6 million shares of Series A Cumulative Exchangeable Redeemable
Convertible Preferred Stock of SSCC (the "SSCC Preferred Stock"). In addition,
a cash payment of $6.4425 per share, totaling approximately $30 million, was
made to the holders of the Stone Preferred Stock. The cash payment was equal to
the accrued and unpaid dividends on each share of Stone Preferred Stock less
$0.12 per share to cover certain transaction related expenses. The Company made
a $30 million intercompany loan to SSCC to accommodate the completion of the
merger transaction. This note bears interest at the rate of 15.39% per annum,
is payable on December 1 and June 1 of each year commencing on June 1, 2001,
and has a maturity date of November 18, 2004.

SSCC has the option, in lieu of paying accrued interest in cash, to pay the
accrued interest by adding the amount of accrued interest to the principal
amount of the notes. Interest income of $65 million, $53 million and $48
million in 2001, 2000 and 1999, respectively has been added to the principal
amount of the notes. The notes are unsecured obligations of SSCC.

The holders of the SSCC preferred stock are entitled to cumulative dividends of
$0.4375 per quarter, payable in cash except in certain circumstances, with the
first dividend paid on February 15, 2001. These dividends of approximately $2
million per quarter are funded by dividends from JSC(U.S.) through the Company
to SSCC.

                                       42

<PAGE>

14. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and fair values of the Company's financial instruments are
as follows:

<TABLE>
<CAPTION>
                                                        2001              2000
                                               -------------------------------------
                                                 Carrying    Fair  Carrying    Fair
                                                  Amount    Value   Amount    Value
                                               -------------------------------------
<S>                                                 <C>     <C>       <C>     <C>
Cash and cash equivalents......................     $  11   $  11     $  21   $  21
Notes receivable from SSCC.....................       499     499       439     439
Residual interest in timber notes..............        40      40        37      37
Derivative liabilities.........................         6       6
Long-term debt, including current maturities...     1,427   1,424     1,529   1,533
</TABLE>

The carrying amount of cash equivalents approximates fair value because of the
short maturity of those instruments. The fair values of notes receivable from
SSCC and the residual interest in timber notes are based on discounted future
cash flows. The fair value of the Company's derivatives is based on prevailing
market rates at December 31, 2001. The fair value of the Company's debt is
estimated based on the quoted market prices for the same or similar issues or
on the current rates offered to the Company for debt of the same remaining
maturities.

15. CONTINGENCIES

The Company's past and present operations include activities which are subject
to federal, state and local environmental requirements, particularly relating
to air and water quality. The Company faces potential environmental liability
as a result of violations of permit terms and similar authorizations that have
occurred from time to time at its facilities. In addition, the Company faces
potential liability for response costs at various sites for which it has
received notice as being a potentially responsible party ("PRP") concerning
hazardous substance contamination. In estimating its reserves for environmental
remediation and future costs, the Company's estimated liability reflects only
the Company's expected share after consideration for the number of other PRPs
at each site, the identity and financial condition of such parties and
experience regarding similar matters. As of December 31, 2001, the Company had
approximately $15 million reserved for environmental liabilities.

If all or most of the other PRPs are unable to satisfy their portion of the
clean-up costs at one or more of the significant sites in which the Company is
involved or the Company's expected share increases, the resulting liability
could have a material adverse effect on the Company's consolidated financial
condition or results of operations.

The Company is a defendant in a number of lawsuits and claims arising out of
the conduct of its business, including those related to environmental matters.
While the ultimate results of such suits or other proceedings against the
Company cannot be predicted with certainty, the management of the Company
believes that the resolution of these matters will not have a material adverse
effect on its consolidated financial condition or results of operations.

16. BUSINESS SEGMENT INFORMATION

The Company has three reportable segments: (1) Containerboard and Corrugated
Containers, (2) Consumer Packaging and (3) Reclamation. The Containerboard and
Corrugated Containers segment is highly integrated. It includes a system of
mills and plants that produces a full line of containerboard that is converted
into corrugated containers. Corrugated containers are used to transport such
diverse products as home appliances, electric motors, small machinery, grocery
products, produce, books, tobacco and furniture. The Consumer Packaging segment
is also highly integrated. It includes a system of mills and

                                      43

<PAGE>

plants that produces a broad range of coated recycled boxboard that is
converted into folding cartons and packaging labels. Folding cartons are used
primarily to protect products such as food, fast food, detergents, paper
products, beverages, health and beauty aids and other consumer products, while
providing point of purchase advertising. Flexible packaging, paper and
metalized paper and heat transfer labels are used in a wide range of consumer
applications. The Reclamation segment collects recovered paper generated by
industrial, commercial and residential sources which is used as raw material
for the Company's containerboard and boxboard mills as well as for sales to
external third party mills.

The Company evaluates performance and allocates resources based on profit or
loss from operations before income taxes, interest expense, and other
non-operating gains and losses. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies except that the Company accounts for inventory on a FIFO
basis at the segment level compared to a LIFO basis at the consolidated level.
Intersegment sales and transfers are recorded at market prices. Intercompany
profit is eliminated at the corporate level.

The Company's reportable segments are strategic business units that offer
different products. The reportable segments are each managed separately because
they manufacture distinct products. Other includes corporate related items and
one non-reportable segment, Specialty Packaging. Corporate related items
include goodwill, the elimination of intercompany assets and intercompany
profit and income and expense not allocated to reportable segments including
corporate expenses, restructuring charges, goodwill amortization, interest
expense and the adjustment to record inventory at LIFO.

In 1999, corporate related items included a $407 million gain on the timberland
sale and related note monetization program (See Note 4).

                                      44

<PAGE>

A SUMMARY BY BUSINESS SEGMENT FOLLOWS:

<TABLE>
<CAPTION>
                                              Container-
                                                board &
                                              Corrugated   Consumer   Recla-
                                              Containers  Packaging   mation   Other    Total
                                             --------------------------------------------------
<S>                                             <C>        <C>        <C>     <C>     <C>
Year ended December 31, 2001
Revenues from external customers...........     $1,905      $  982    $375    $ 204   $3,466
Intersegment revenues......................         44          24      63        9      140
Depreciation, depletion and amortization...         63          29       3       29      124
Segment profit (loss)......................        156          91       6      (67)     186
Total assets at December 31................      1,118         468      68      890    2,544
Capital expenditures.......................         30          23       3       30       86

Year ended December 31, 2000
Revenues from external customers...........     $2,033      $1,017    $605    $ 212   $3,867
Intersegment revenues......................         47          26     121        9      203
Depreciation, depletion and amortization...         61          29       3       26      119
Segment profit (loss)......................        220          99      26     (100)     245
Total assets at December 31................      1,200         495      85      887    2,667
Capital expenditures.......................         76          16       1       23      116

Year ended December 31, 1999
Revenues from external customers...........     $1,818      $  951    $452    $ 192   $3,413
Intersegment revenues......................         40          20     126        6      192
Depreciation, depletion and amortization...         68          28       3       24      123
Segment profit.............................        195          91      17      159      462
Total assets at December 31................      1,195         512     110      919    2,736
Capital expenditures.......................         30          22       2       15       69
</TABLE>

The following table presents net sales to external customers by country of
origin:

                                           2001    2000    1999
                                     ---------------------------
United States........................    $3,441  $3,861  $3,406
Foreign..............................        25       6       7
                                     ---------------------------
  Total net sales....................    $3,466  $3,867  $3,413
                                     ---------------------------

                                      45

<PAGE>

17. QUARTERLY RESULTS (UNAUDITED)

The following is a summary of the unaudited quarterly results of operations:

                                          First      Second   Third    Fourth
                                         Quarter    Quarter  Quarter   Quarter
                                     -----------------------------------------
2001
Net sales...........................     $886     $  883       $861     $836
Gross profit........................      122        137        141      131
Income from continuing operations
   before extraordinary item........       17         28         34       31
Extraordinary item..................       (1)        (1)
Net income..........................       16         27         34       31

2000
Net sales...........................     $940     $1,020       $969     $938
Gross profit........................      136        170        152      159
Income from continuing operations
   before extraordinary item........       22         43         33       48
Gain on disposition of discontinued
   operations.......................                   6
Extraordinary item..................                                      (1)
Net income..........................       22         49         33       47

                                      46

<PAGE>

                                   JSCE, INC.
          SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                                  (In millions)

<TABLE>
<CAPTION>
             Column A                Column B      Column C   Column D      Column E
-------------------------------------------------------------------------------------
                                                   Additions
                                    Balance at    Charged to                Balance at
                                   Beginning of    Costs and  Deductions     End of
           Description               Period        Expenses    Describe      Period
-------------------------------------------------------------------------------------
<S>                                    <C>         <C>         <C>           <C>
Allowance for doubtful accounts
and sales returns and allowances:
    Year ended December 31, 2001.....  $  9          $  4       $  2(a)        $11
                                     ------------------------------------------------
    Year ended December 31, 2000.....  $  9          $  6       $  6(a)        $ 9
                                     ------------------------------------------------
    Year ended December 31, 1999.....  $  9          $  1       $  1(a)        $ 9
                                     ------------------------------------------------

Restructuring:
    Year ended December 31, 2001....   $ 23          $  4       $  7(b)        $20
                                     ------------------------------------------------
    Year ended December 31, 2000....   $ 29          $          $  6(b)        $23
                                     ------------------------------------------------
    Year ended December 31, 1999....   $ 71          $ 14       $ 56(b)        $29
                                     ------------------------------------------------
</TABLE>

  (a)  Uncollectible amounts written off, net of recoveries.
  (b)  Charges against the restructuring reserves and adjustment to 1998 exit
       liabilities.

                                      47

<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        ---------------------------------------------------------------
        FINANCIAL DISCLOSURE
        --------------------

None

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
         ---------------------------------------------------------------

(a)       (1) and (2) The list of Financial Statements and Financial
          Statement Schedules required by this item is included in Item 8.

          (3) Exhibits

3.1       Certificate of Incorporation of JSCE, Inc. ("JSCE")
          (incorporated by reference to Exhibit 3.1 to JSCE's Annual Report on
          Form 10-K for the fiscal year ended December 31, 1994).

3.2       By-laws of JSCE (incorporated by reference to Exhibit 3.2 to
          JSCE's Annual Report on Form 10-K for the fiscal year ended December
          31, 1994).

Indentures and other debt instruments with respect to other long-term debt,
none of which exceeds 10 percent of the total assets of JSCE and its
subsidiaries on a consolidated basis, are not filed herewith. (The Registrant
agrees to furnish a copy of such documents to the Commission upon request).

4.1       Indenture for the 1993 Senior Notes (incorporated by reference
          to Exhibit 4.4 to Smurfit-Stone Container Corporation's ("SSCC")
          Registration Statement on Form S-1 (File No. 33-75520)).

4.2       First Supplemental Indenture to the 1993 Senior Note Indenture
          (incorporated by reference to Exhibit 4.5 to SSCC's Registration
          Statement on Form S-1 (File No. 33-75520)).

10.1      Subscription Agreement among SSCC, Jefferson Smurfit
          Corporation (U.S.) ("JSC(U.S.)"), Container Corporation of America
          and Smurfit International BV (incorporated by reference to Exhibit
          10.4 to SSCC's Quarterly Report on Form 10-Q for the quarter ended
          March 31, 1994).

10.2*     Jefferson Smurfit Corporation (U.S.) Deferred Compensation
          Plan, as amended (incorporated by reference to Exhibit 10.7 to
          SSCC's Annual Report on Form 10-K for the fiscal year ended December
          31, 1996).

10.3*     Jefferson Smurfit Corporation (U.S.) Management Incentive Plan
          (incorporated by reference to Exhibit 10.10 to SSCC's Annual Report
          on Form 10-K for the fiscal year ended December 31, 1995).

10.4(a)*  Jefferson Smurfit Corporation Amended and Restated 1992
          Stock Option Plan dated as of May 1, 1997 (incorporated by reference
          to Exhibit 10.10 to SSCC's Annual Report on Form 10-K for the fiscal
          year ended December 31, 1997).

10.4(b)*  Amendment of the Jefferson Smurfit Corporation Amended and
          Restated 1992 Stock Option Plan (incorporated by reference to
          Exhibit 10.3 to SSCC's Quarterly Report on Form 10-Q for the quarter
          ended September 30, 1999).

                                      48

<PAGE>

10.5(a)   Second Amended and Restated Credit Agreement, dated as of
          April 27, 2001, among SSCC, JSCE, JSC(U.S.) and the financial
          institutions signatory thereto, The Chase Manhattan Bank and Bankers
          Trust Company, as Senior Managing Agents, and The Chase Manhattan
          Bank, as Administrative Agent (incorporated by reference to Exhibit
          10.2 to SSCC's Quarterly Report on Form 10-Q for the quarter ended
          March 31, 2001).

10.5(b)   Amendment No. 1 and Waiver, dated as of December 31, 2001,
          among SSCC, JSCE, JSC(U.S.), the financial institutions party to the
          Second Amended and Restated Credit Agreement dated as of April 27,
          2001, JPMorgan Chase Bank and Bankers Trust Company, as Senior
          Managing Agents, and JPMorgan Chase Bank, as Administrative Agent
          (incorporated by reference to Exhibit 10.5(b) to SSCC's Annual
          Report on Form 10-K for the fiscal year ended December 31, 2001).

10.6(a)   Term Loan Agreement, dated as of February 23, 1995, among
          Jefferson Smurfit Finance Corporation ("JS Finance") and Bank
          Brussels Lambert, New York Branch (incorporated by reference to
          Exhibit 10.1 to SSCC's Quarterly Report on Form 10-Q for the quarter
          ended March 31, 1995).

10.6(b)   Depositary and Issuing and Paying Agent Agreement (Series A
          Commercial Paper), dated as of February 23, 1995 (incorporated by
          reference to Exhibit 10.2 to SSCC's Quarterly Report on Form 10-Q
          for the quarter ended March 31, 1995).

10.6(c)   Depositary and Issuing and Paying Agent Agreement (Series B
          Commercial Paper), dated as of February 23, 1995 (incorporated by
          reference to Exhibit 10.3 to SSCC's Quarterly Report on Form 10-Q
          for the quarter ended March 31, 1995).

10.6(d)   Receivables Purchase and Sale Agreement, dated as of February
          23, 1995, among JSC(U.S.), as Initial Servicer, and JS Finance, as
          Purchaser (incorporated by reference to Exhibit 10.4 to SSCC's
          Quarterly Report on Form 10-Q for the quarter ended March 31, 1995).

10.6(e)   Liquidity Agreement, dated as of February 23, 1995, among JS
          Finance, the financial institutions party thereto as Banks, Bankers
          Trust Company as Facility Agent and Bankers Trust Company as
          Collateral Agent (incorporated by reference to Exhibit 10.6 to
          SSCC's Quarterly Report on Form 10-Q for the quarter ended March 31,
          1995).

10.6(f)   Commercial Paper Dealer Agreement, dated as of February 23,
          1995, among BT Securities Corporation, Morgan Stanley & Co.,
          JSC(U.S.) and JS Finance (incorporated by reference to Exhibit 10.7
          to SSCC's Quarterly Report on Form 10-Q for the quarter ended March
          31, 1995).

10.6(g)   Addendum, dated March 6, 1995, to Commercial Paper Dealer
          Agreement (incorporated by reference to Exhibit 10.8 to SSCC's
          Quarterly Report on Form 10-Q for the quarter ended March 31, 1995).

10.6(h)   First Omnibus Amendment, dated as of March 31, 1996, to the
          Receivables Purchase and Sale Agreement among JSC(U.S.), JS Finance
          and the banks party thereto (incorporated by reference to Exhibit
          10.3 to SSCC's Quarterly Report on Form 10-Q for the quarter ended
          June 30, 1996).

10.6(i)   Affiliate Receivables Sale Agreement, dated as of March 31,
          1996, between Smurfit Newsprint Corporation and SSCC (incorporated
          by reference to Exhibit 10.4 to SSCC's Quarterly Report on Form 10-Q
          for the quarter ended June 30, 1996).

10.6(j)   Amendment No. 2, dated as of August 19, 1997, to the Term
          Loan Agreement among JS Finance and Bank Brussels Lambert, New York
          Branch and JSC(U.S.) as Servicer

                                      49

<PAGE>

          (incorporated by reference to Exhibit 10.12(j) to SSCC's Annual
          Report on Form 10-K for the fiscal year ended December 31, 1997).

10.6(k)   Amendment No. 2, dated as of August 19, 1997, to the
          Receivables Purchase and Sale Agreement among JSC(U.S.) as the
          Seller and Servicer, JS Finance as the Purchaser, Bankers Trust
          Company as Facility Agent and Bank Brussels Lambert, New York Branch
          as the Term Bank (incorporated by reference to Exhibit 10.12(k) to
          SSCC's Annual Report on Form 10-K for the fiscal year ended December
          31, 1997).

10.6(l)   Amendment No. 2, dated as of August 19, 1997, to the
          Liquidity Agreement among JS Finance, Bankers Trust Company as
          Facility Agent, JSC(U.S.) as Servicer, Bank Brussels Lambert, New
          York Branch as Term Bank and the financial institutions party
          thereto as Banks (incorporated by reference to Exhibit 10.12(l) to
          SSCC's Annual Report on Form 10-K for the fiscal year ended December
          31, 1997).

10.6(m)   Amendment No. 3, dated as of March 9, 2001, to the Liquidity
          Agreement among JS Finance, Bankers Trust Company as Facility Agent,
          JSC(U.S.) as Servicer, Bank Brussels Lambert, New York Branch as
          Term Bank and the financial institutions party thereto as Banks
          (incorporated by reference to Exhibit 10.1 to SSCC's Quarterly
          Report on Form 10-Q for the quarter ended March 31, 2001).

10.7*     Consulting Agreement, dated as of October 24, 1996, by and
          between James S. Terrill and JSC(U.S.) (incorporated by reference to
          Exhibit 10.15 to SSCC's Annual Report on Form 10-K for the fiscal
          year ended December 31, 1996).

10.8(a)*  Smurfit-Stone Container Corporation 1998 Long-Term Incentive
          Plan (incorporated by reference to Exhibit 10.14 to SSCC's Annual
          Report on Form 10-K for the fiscal year ended December 31, 1998).

10.8(b)*  First Amendment of the Smurfit-Stone Container Corporation
          1998 Long-Term Incentive Plan (incorporated by reference to Exhibit
          10.2 to SSCC's Quarterly Report on Form 10-Q for the quarter ended
          September 30, 1999).

10.9*     Forms of Employment Security Agreements (incorporated by
          reference to Exhibit 10(h) to SSCC's Registration Statement on Form
          S-4 (File No. 333-65431)). 10.10(a) Purchase and Sale Agreement,
          effective as of July 28, 1999, between Rayonier, Inc. and JSC(U.S.)
          (incorporated by reference to Exhibit 2.1 to JSCE's Current Report
          on Form 8-K dated October 25, 1999).

10.10(a)  Purchase and Sale Agreement, effective as of July 28, 1999, between
          Rayonier, Inc. and JSC(U.S.) (incorporated by reference to Exhibit
          2.1 to JSCE's Current Report on Form 8-K dated October 25, 1999).

10.10(b)  First Amendment to Purchase and Sale Agreement, dated
          October 21, 1999, between Rayonier, Inc. and JSC(U.S.) (incorporated
          by reference to Exhibit 2.2 to JSCE's Current Report on Form 8-K
          dated October 25, 1999).

10.11*    Employment Agreement of Ray M. Curran (incorporated by
          reference to Exhibit 10.27 to SSCC's Annual Report on Form 10-K for
          the fiscal year ended December 31, 1999).

10.12*    Consulting Agreement, dated as of January 4, 2002, by and
          between Ray M. Curran and SSCC (incorporated by reference to Exhibit
          10.25 to SSCC's Annual Report on Form 10-K for the fiscal year ended
          December 31, 2001).

10.13*    Letter Agreement dated January 4, 2002 by and between Ray M.
          Curran and SSCC (incorporated by reference to Exhibit 10.26 to
          SSCC's Annual Report on Form 10-K for the fiscal year ended December
          31, 2001).

                                      50

<PAGE>

10.14*    Employment Agreement of Patrick J. Moore (incorporated by
          reference to Exhibit 10.27 to SSCC's Annual Report on Form 10-K for
          the fiscal year ended December 31, 1999).

10.15*    Employment agreement for Joseph J. Gurandiano (incorporated by
          reference to Exhibit 10.1 to SSCC's Quarterly Report of Form 10-Q
          for the quarter ended June 30, 2000).

10.16*    Employment Agreement of William N. Wandmacher (incorporated by
          reference to Exhibit 10.31 to SSCC's Annual Report on Form 10-K for
          the fiscal year ended December 31, 2000).

10.17*    Employment Agreement of F. Scott Macfarlane (incorporated by
          reference to Exhibit 10.32 to SSCC's Annual Report on Form 10-K for
          the fiscal year ended December 31, 2000).

*Indicates a management contract or compensation plan or arrangement.

(b) Reports on Form 8-K.

There were no Form 8-K filings during the three months ended December 31, 2001.

                                      51

<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

DATE March 13, 2002                         JSCE, Inc.
     -----------------              -------------------------
                                           (Registrant)

                              BY      /s/Charles A. Hinrichs
                                    -------------------------
                                        Charles A. Hinrichs
                              Vice President and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the date indicated.

<TABLE>
<CAPTION>
       SIGNATURE                               TITLE                            DATE
       ---------                               -----                            ----
<S>                         <C>                                            <C>
/s/ Patrick J. Moore        President and Chief Executive Officer          March 13, 2002
------------------------    and Director (Principal Executive Officer)
Patrick J. Moore

/s/ Charles A. Hinrichs     Vice President and Chief Financial Officer     March 13, 2002
------------------------    and Director (Principal Financial Officer)
Charles A. Hinrichs

/s/ Paul K. Kaufmann        Vice President and Corporate Controller        March 13, 2002
------------------------    (Principal Accounting Officer)
Paul K. Kaufmann
</TABLE>

                                      52